In a shocking twist, the No. 2 and No. 4 mobile phone carriers in America are to be merged, highlighting fears of a wireless monopoly.
ATT is set to acquire T-Mobile USA from Deutsche Telekom for $39 billion in cash and stock. The deal, if approved by regulators at the US Department of Justice and the Federal Communications Commission, will certainly shift the market. The deal will remain in the regulatory review process for about 12 months.
A number of regulators however doubt it will even clear regulatory approval.
Jonathan Chaplin, a Credit Suisse analyst said the move would be “phenomenal…if it happens.” He explained in an article that the regulatory risk “enormous,” and unlikely to go through.
If the two are merged the result would be a mass conglomerate in the US mobile phones market – ATT would become the largest market player serving 130 million wireless subscribers. The number two spot would fall on Version Wireless, holding about 94 million subscribers, with Sprint Nextel falling to become the smallest of the large American carriers with 49.9 million subscribers.
ATT would have a massive lead on their competition.
Chaplin said he has “never seen a deal with more regulatory risk be attempted in the US.” He argued ATT however would likely be willing to make a great deal of concession to see the deal through, fighting to become number one at great lengths.
Some such concessions could be guaranteed price cuts or options for subscribers to upgrade phones at minimal cost for the new 4G network. Many of ATT’s current 3G phones could eventually become obsolete on the network – including Apple’s iPhone.
Additionally, plans for coverage would change. T-Mobile currently offers for open and unlimited plans, ATT do not and they are unlikely to begin doing so again. There will be fewer payment plans and options of choose from, but a greater assortment of individual phones.
Consumer groups and competition advocates have been quick to criticize the deal, many calling it unthinkable and a direct attack on consumers.
One such organization, Public Knowledge, argued the deal would lead to “higher prices, fewer choices [and] less innovation.”
The Media Access Project, a public interest law firm, noted the deal would give “three players nearly three-quarters of [the wireless] market.”
If regulators reject the plan, ATT will still benefit, but to a lesser degree. ATT is poised to pay T-Mobile a $3 billion break-up fee if the deal fails. This would depress competition from T-Mobile and delay any future mergers between T-Mobile and others – notable Sprint Nextel.