COULD this be the end of the line for T-Mobile USA? On March 20th AT&T, an American telecoms giant, launched an eye-watering $39 billion bid for its smaller competitor, which is owned by Germany's Deutsche Telekom.
If approved, the acquisition would leave America with only three sizeable operators in the wireless-telecom business: AT&T, Verizon and Sprint. For this reason, the deal is likely to meet stiff opposition from consumer groups and other telecoms firms, who worry that AT&T will use its extra muscle to crush competition further. A study by the General Accounting Office (GAO), an arm of Congress, found that America's four big wireless carriers already control 90% of the national market. Indeed, there had been much speculation that AT&T would buy a big company in a foreign market such as India rather than splash out at home, given the risks of a prolonged anti-trust investigation there. But rumours that Sprint was also sniffing around T-Mobile probably encouraged it to make its move.
Assuming it gets a green light, the deal will remove an innovative carrier from the market—one that has long offered some of the lowest prices for cellular service in America. Ironically, T-Mobile USA's latest television advertising campaign is especially rude about the quality of AT&T's service and the offers that it provides. As well as bashing AT&T on air, the company has clashed with its rivals over telecoms regulation.
The transaction could have implications for firms which make operating systems for smartphones and provide apps for them, such as Google. It is not far-fetched to think that a bigger AT&T may try to control more of the "ecosystem" around smartphones and other consumer devices, perhaps launching its own apps and favouring these over rival offerings.
Unsurprisingly, AT&T is telling anyone who will listen that its proposed deal will be great for American consumers, as well as for its shareholders. It notes that the GAO found that the overall average price of wireless services (adjusted for inflation) fell 50% between 1999 and 2009, even though there were several mergers during that period. It also claims that by getting its hands on T-Mobile USA's network infrastructure and wireless spectrum, it will be able to provide better services to its customers. And it says that the deal would help it introduce the next generation of fast wireless services.
The company is also doing it best to wrap its proposed deal in the Stars and Stripes. Its press release says that the transaction "makes T-Mobile USA, currently a German-owned US telecom network, part of a US-based company". And it claims that the deal will lead to an extra $8 billion investment in high-tech infrastructure over a seven-year period, something the Obama administration is keen on. Perhaps, but if, as seems likely, the deal also squeezes competition and innovation, it would be bad for wireless consumers—and for America.
©economist.com
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