Why Blocked AT&T, T-Mobile USA Deal is Good for Growth

Rich Tehrani : Communications and Technology Blog - Tehrani.com
Rich Tehrani
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Why Blocked AT&T, T-Mobile USA Deal is Good for Growth

Critics might say, in the history of M&A, it is difficult to recall one instance where more jobs were created as a result of two companies coming together. Yet this is the argument AT&T has been making for just less than three months after the merger announcement with AT&T and T-Mobile USA was announced. In part the argument was reinforced by the company's commitment to bring remote call center jobs back to the states.

Moreover, AT&T’s claim that this merger would be good for consumers is an interesting one as critics might say it is fairly easy to argue either side.

For example, if the merger were to go through, AT&T would have tremendous incentive to upgrade the speed of its network because as of the last year it has started to charge for bandwidth – eliminating unlimited plans. In other words, the company would be motivated to speed up its network to ensure it could charge customers more per unit of time they use network services.

In the alternate scenario, improving network speed would be something done to stay competitive and passing on the higher costs of network improvements to consumers could only be done if other carriers decided to do the same thing. In the situation where free market competition is in play, companies will have to be more innovative, trying new tactics to get a leg up on the other wireless carriers. And in this scenario, consumers win.

Last month I asked if this merger would slow wireless innovation and one of the points I made was that T-Mobile USA and Sprint have been more aggressive working with smaller equipment providers who rely on deals with smaller carriers to keep their investors interested and motivated to pony up more cash in the hopes of eventually landing a big global carrier at some later date.

It seems the FTC agrees as they filed a civil suit this morning to block the deal citing that T-Mobile has been a disruptive force in the market. The complaint further cites a T-Mobile document in which the wireless carrier  explains it has been responsible for a number of significant "firsts" in the U.S. mobile wireless industry, including the first handset using the Android operating system, Blackberry wireless email, the Sidekick, national Wi-Fi "hotspot" access, and a variety of unlimited service plans. T-Mobile was also the first company to roll out a nationwide high-speed data network based on advanced HSPA+ (High-Speed Packet Access) technology. The complaint states that by January 2011, an AT&T employee was observing that "[T-Mobile] was first to have HSPA+ devices in their portfolio...we added them in reaction to potential loss of speed claims."

The size of the breakup fee is $3B in cash and potential a billion dollars or more in spectrum so we can expect AT&T to fight this decision tooth and nail. It is worth pointing out that Deutsche Telekom, the parent company of T-Mobile USA believes the breakup fee is worth $6B.

But one has to wonder what AT&T knew and what inside information they had to decide to go ahead with this deal. After all, there are few if any business leaders who believe the Obama administration and by default the federal government is pro-business. Steve Wynn is perhaps one of the most vocal and worth listening to. And if there is even a hint that consumers would be hurt in this transaction, wouldn’t it obviously be denied?

So what possessed AT&T to go forward on this deal if they didn’t have amazingly good inside information?

And the timing – it just couldn’t be worse – AT&T CEO Randal Stephenson was on CNBC this morning touting how good the merger would be for the US economy – pledging in part to bring 5,000 wireless call center jobs back to the US if the deal was approved.


Then a few hours later the DOJ makes the announcement – almost the moment after the CNBC segment was complete.

If there is an interesting twist in this news it’s that the Communications Workers of America Union is very supportive of the merger as according to CNBC, AT&T is a union shop while T-Mobile USA is not. They even said publicly that the DOJ lawsuit is the wrong decision for jobs. As the Obama administration is extremely pro-union, having the CWA on-board could have been a big reason that AT&T felt confident they could get this deal through.

So I can’t help but to conclude that DOJ used common sense here and although AT&T’s arguments as to why this merger would be good for jobs and consumers is likely true for the short-term, over years, having one less wireless carrier would mean less innovation not just from the perspective of competitive pressure in the marketplace but from the resulting death of a slew of wireless equipment and service providers who rely on smaller carriers like Sprint and T-Mobile to get their start as telecom equipment providers.

It is worth reminding my readers that I have pointed out often in the last few months that call center jobs in India are becoming a problem because Indians don't look favorably at the work anymore and moreover, the competition for labor is so great that wage inflation and turnover rates are skyrocketing. The videos below give you a further taste of what I mean - so we might expect AT&T Mobility and other call center jobs to end up back in the states regardless of the results of this attempted acquisition.




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