AT&T’s response to Comcast’s proposed purchase of Time Warner was to acquire DIRECTV. With Sprint positioning itself to acquire T-Mobile, millions of Americans will see significant changes in their providers with little expectation of more competitive pricing or new features. When Divestiture occurred in 1984, the intent was to divide AT&T into different operating entities, where each would have a regional responsibility to service their customer base, while allowing AT&T to pursue the more lucrative long distance business, sales of computers and continue to own and leverage Bell Labs. The result has been that 30 years later, that version of AT&T was gobbled up by one of its spin-offs and, instead of having eight healthy, thriving companies (7 RBOCs and AT&T), we are down to three: AT&T (formerly Southwestern Bell, Ameritech, Pacific Telesis, BellSouth and AT&T), Verizon (Bell Atlantic and GTE) and Century Link (Qwest and too many others to mention). The expectation that the smaller entities would prevail over time was wrong. It became nearly impossible to execute the level of investment required to compete during a time of fluctuating economic conditions, rapid changes in communications technology and a major shift to wireless communications.
If the proposed mergers and acquisitions are approved, and the companies exit the regulatory review relatively intact, five companies will be responsible for providing local phone service, wireless communications and cable for the vast majority of Americans. Moreover, they will not be competing with each other in any meaningful way other than, possibly, through wireless services. And wireless services is the only segment where prices and contractual arrangements are falling or changing to attract new customers.
Comcast will have 30 million subscribers. AT&T will have 26 million. And Verizon will be trailing badly with fewer than 11 million subscribers. However, that is only looking at cable and Internet services. AT&T is the largest provider of both landlines* (24,600,000) and wireless (110,300,000) subscribers in the country and, with the acquisition of DIRECTV, would become a behemoth. Verizon, with 21,000,000 landline* and 102,000,000 wireless subscribers, is much closer to AT&T when viewing all of its operations. (*2013 Annual Reports)
If, as Comcast says, size and scale are important to compete and deliver services, then the old concept of dinosaur may have been a mistake. Perhaps the carriers of old were brontosauruses, but today’s carriers are much more along the lines of Godzilla 2014, monstrous, but seemingly out to save humanity. Let’s just say I’m not convinced. At some point, their size removes the actual threat of competition from smaller carriers and, certainly, new entrants into markets.
Finally, this is not just about price. The US is trailing in terms of speeds for service, innovative service offerings and, well, price compared to the rest of the developed nations. We need a political strategy that complements the prevailing commercial strategies of the largest carriers. Only then will we see if scale really matters.