Tech Break: Merger Mania

Welcome back from Spring Break, everyone! AT&T is buying T-Mobile… and CenturyLink is buying Qwest. The latter story has been out for awhile, though only recently has the federal government approved the wireline telephone giant merger. The former is hot off the presses and is by far the more worrisome of the two stories.

First, some stats about post-merger AT&T (they are not going to keep the T-Mobile name, I can tell you that right now). The combined company will have around 130 million customers, a full quarter more than Verizon’s huge customer base. AT&T’s $39 billion purchase price pegs each of T-Mobile’s 33-plus-million customers at a little over $1100 in value, if we are measuring by that alone.

Of course, T-Mobile has more than just customers; they spent around $4.2 billion in the FCC’s 2006 AWS auction to pick up large swaths of 1700MHz spectrum, on which they have built a respectable HSPA+ (“4G”) network in many metropolitan areas, including Denver. Their 4G cell sites are connected to the Internet via fiber backhauls (and probably some wireless tower-to-tower links), allowing the carrier to scale up capacity as they push out upgrades to the top of the tower. AT&T has spectrum and fiber-fed cell sites as well, but they have been complaining that their spectrum position is too weak to deal with the onslaught of data-hogging customer devices, and stated in their purchase press release that T-Mobile’s added bandwidth would help with that.

Of course, one convenient reason for AT&T to make this takeover is that now they will not have a competing network, using a similar wireless technology, who periodically peppers them with attack ads stating how poor Big Blue’s network is. The lack of this competitor means that customers have one less place to turn when looking for wireless service; if approved, the AT&T deal would leave only Sprint and Verizon on the national wireless field, with Sprint weighing in at about half of Verizon’s size and 40% of AT&T’s.

This brings up an important point. What will the US government say about the acquisition? They could (and should, in my opinion) block the purchase; AT&T and T-Mobile are direct, fierce competitors in practically every market that T-Mobile serves, and in every instance T-Mobile provides a bigger bucket of minutes or data at a lower price than AT&T. That said, AT&T could wave their hands about bringing LTE service to rural areas (to compete with Verizon) and get the deal approved anyway. After all, Verizon’s purchase of Alltel and Cingular’s (now AT&T’s) purchase of the old AT&T Wireless were allowed to pass, though neither of these companies had as many subscribers as T-Mobile.

The bottom line is that, if the acquisition is approved, customers will be losing a solid wireless option in most urban areas, though merger conditions may make AT&T become a 4G competitor to Verizon a bit faster. The fear, however, is that the shockwave from this acquisition will pressure Sprint to be bought up by Verizon, leaving only two national cellular carriers. More likely, Sprint will form an even closer alliance with such regional providers as CricKet and MetroPCS, possibly merging with one or both to try to stay above water as they switch from WiMAX to LTE as their own 4G play. In short, wireless consolidation will not stop with this, and the results probably will not be pretty for customers, except maybe in terms of data speeds (but not prices).

What are your thoughts about the T-Mobile takeover? Post a comment on the online version of this article. Also, look for an online exclusive later this week about what the CenturyLink-Qwest merger will mean for folks in the Denver area (hint: it’s significantly less earth-shaking than this acquisition).

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