AT&T – T-Mobile in Competitive Perspective

April 25, 2011

As the DOJ and FCC research and sort through the competitive facts of the AT&T-T-Mobile acquisition for themselves in the months ahead, it will become clear that opponents’ current rhetoric and assertions are over-the-top, exaggerated and simply not credible.

  • FreePress and others’ claims that this transaction will enable AT&T to “monopolize everything” and reconstitute the “Ma Bell Monopoly,” are political demonization arguments devoid of evidence; they are designed to discredit U.S. competition policy, demonize free markets, and justify new FCC interventionist regulation like net neutrality, special access etc.

I.   The Relevant Facts:

Straightforward Local Market Analysis:  Repeated precedent has examined wireless markets at the local level and through that tried and true market definition lens, regulators will find most all local markets are competitive with strong regional competitors like: MetroPCS, Leap, U.S. Cellular, Cellular South, Cincinnati Bell Wireless, and Cox Communications.

  • When the regulators examine local markets they will find that the transaction in most all markets reduces competitors from ~6 to 5 or 5 to 4, not the 4 to 3 opponents generalize.
    • And regulators know that in the select markets where they may view concentration as problematic, they can employ the well-worn process of negotiating divestitures to easily cure the problem, a process the companies and the markets are very familiar with.

Faux & Overstated National Market Definition: Of the ~300m U.S. wireless subscribers AT&T has ~32% (~95m) T-Mobile ~11% (~32m) so the combination would have AT&T at less than 43% of national subscribers, not even in the ballpark of a monopoly of 75-90% of subscribers some opponents charge.

  • Even the combined subscriber shares of AT&T, T-Mobile, and Verizon, opponents specious “duopoly” charge would only reach ~73.5% meaning that the remaining share of wireless subscribers would be about 26.5% or about 85% the size of the remaining #2 competitor Verizon.
  • Even using the chosen market definition of opponents, the market share facts don’t support their specious monopoly and duopoly charges.

There are even more national market facts that prove AT&T has no chance of monopolizing anything, and is not reconstituting the 1970s Ma Bell Monopoly. And both the DOJ and FCC are intimately familiar with the real facts of the former monopoly voice market.

  • They know that over the last ten years that the Bell companies that now comprise AT&T have gone from about 43% share of the national voice market in 2000 to about 20% of the national voice market today.
    • Over the last decade, AT&T has lost roughly 50% of its landline voice subscribers to competition; and is continuing to lose them at a very substantial annual rate to cable, VoIP, and wireless competition/substitution.
  • And looking at the wireline broadband market, AT&T has only ~20% national share, and this transaction does little if anything to strengthen that landline business to warrant anti-competitive concerns.

If anything this merger actually accelerates the demise of the old Ma Bell Monopoly that opponents fear, while in no way reconstituting a new monopoly or duopoly.

Global Definition Provides Useful Perspective: Given that opponents claim that this combination could somehow harm device manufacturers, who compete globally because of economies of scale, the global market share facts obliterate opponents’ bogus monopoly/duopoly frame of the problem.

  • When the DOJ and FCC investigate they will find that AT&T is only the ~19th largest mobile operator in the world with less than 2% of global mobile subscribers.
  • Combining AT&T and T-Mobile would make AT&T only the ~15th largest mobile operator in the world with a little more than 2% of global mobile subscribers.
  • When the DOJ and FCC delve deeper they will see how hyper-competitive the global wireless handset market is.
    • There are over eight handset providers with greater global market shares than a combined AT&T-T-Mobile.
    • And there are more than 15 global manufacturers that have global handset sales larger than all of T-Mobile’s 32m subscribers.

II.   The Relevant Context

It is critical baseline context that T-Mobile reached out to AT&T to sell itself, because:

  • It was not willing or able to invest what was necessary to compete successfully in a 4G wireless broadband market going forward; and
  • It obviously concluded that the efficiencies, synergies and financial benefits of selling to Sprint and trying to integrate with Sprint’s highly-incompatible technology — simply did not work for a variety of legitimate network and business reasons.

If AT&T were trying to monopolize or duopolize the wireless market as charged, would they not have been the entity that was actively seeking out a T-Mobile acquisition?

  • As the DOJ and FCC investigate the underlying rationale for this transaction, they will learn how problematic the Sprint-Nextel merger turned out to be, because the technologies were incompatible and created dramatically less integration efficiencies than anticipated.
  • Regulators will probably also better grasp T-Mobile’s decision process to do what was best for its customers and shareholders.
    • In other words, combining with AT&T would provide T-Mobile customers with a much more competitive 4G infrastructure better and faster than T-Mobile could generate solo, or a T-Mobile-Sprint combination could generate together.

III.   The Relevant Market Dynamism

Both the DOJ and FCC will want to be assured that competition will remain dynamic post-transaction.

An important dimension of a competitive market is whether or not it enjoys “maverick” competitive behavior that does not try and just mimic the market leaders.

  • Sprint-Clearwire, with ~50m subscribers and ~16.5% subscriber share, is a quintessential “maverick competitor.”
    • Sprint constantly needles AT&T and Verizon in national marketing campaigns that they offer true “unlimited” usage and lower prices.
    • Sprint has invested more heavily in WiMax technology than anyone in the world via its ClearWire functional subsidiary.
    • Just recently, Sprint became the first to integrate its network offerings with Google Voice’s applications.
    • Sprint is also the most likely partner with LightSquared, the “maverick” market entrant that envisions an “open” wholesale network alternative. (The FCC helped LightSquared proceed to market with a special waiver of normal policy and procedure in order to promote this “maverick” market dynamism.)

Another important dimension of a competitive market is how significant the reseller market is.

  • The impressive success of Tracfone, Virgin, Boost, Apple, Walmart and Best Buy prove it to be a vibrant competitive segment helping the whole ecosystem, and none of those MVNOs are likely to be negatively affected by this transaction.

Yet another important dimension of a competitive market is how innovative and diverse the offering is.

  • As regulators examine the market they will discover vibrant innovation in technology, pricing plans/models, handsets, Apps, products and services.

IV. Conclusion

When the DOJ and FCC do their own investigation, regulators will discover overwhelming evidence of vibrant competition in wireless that will not be substantially lessened by the AT&T-T-Mobile transaction.

  • The facts and the investigation will prove opponents charges of monopolization and/or duopolization do not square with the evidence or facts.
    • Core prices are falling; there is robust competitive entry; many are investing billions in infrastructure and differentiated networks, products, and services; and broad innovation is evident throughout the ecosystem.

The most plausible explanation for opponents’ over-the-top charges that the transaction will lead to monopolization and duopolization of the market in wireless — is politics.

  • Opportunistically, FreePress and its pro-regulation allies have found a process to ambush/exploit to try and discredit U.S. competition policy, demonize free markets, and justify new FCC regulation like net neutrality, special access etc.

If regulators decisions on this transaction are data-driven, fact-based, fair, and bound by law and legal-precedent, this transaction should have no difficulty ultimately getting approved.

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