Hello everyone! It's been a while since I posted, so I thought I'd share a paper I wrote a few weeks ago about AT&T's bid to buy out T-Mobile.
Earlier this past week
the US Justice Department sued the telecommunications giant AT&T in an
effort to block their purchase of T-Mobile USA, which is currently owned by
parent company Deutsche Telekom.[1]
AT&T’s plan to buy T-Mobile raises interesting questions that must be
examined; the biggest one being would this buyout cause a loss of competition
with only three mobile carriers instead of four?
Currently the four
largest mobile carriers in the United States are AT&T, Verizon, T-Mobile
and Sprint.[2] Had the Justice Department not blocked
AT&T’s bid for T-Mobile, the elimination of a competitor would potentially
harm consumers and other interested parties, such as developers and VoIP
carriers. The Justice Department argues
that “…the proposed deal, which would join the nation’s second- and
fourth-largest wireless phone carriers, would result in higher prices and give
consumers fewer innovative products.”[3] Consumer advocacy groups also echoed the
argument by saying that because of T-Mobile’s low cost strategy, they are the
key to keeping affordable mobile packages across the board.[4] By
taking T-Mobile out of competition, says the consumer advocacy groups, AT&T
will cause prices to rise and provide customers with fewer choices[5]and
“thereby turn the cellular market into a duopoly controlled by AT&T and
Verizon.”[6]
In an analysis of
AT&T’s proposal to buy T-Mobile, Yankee Group backs the Justice
Department’s argument that the buyout does indeed hurt consumers. The group
states that “in several major markets AT&T’s share of overall subscribers
would exceed 50%, creating concentration levels among the remaining providers
that would drive prices higher for all consumers.”[7] As a result of this higher market
concentration, Yankee Group says there “would be an increase in the average
bill in many major markets, in some cases in excess of $5 a month by 2015.”[8]
To answer the question
if competition is good for the customer, the evidence is pointing to an answer
of yes. It appears that the more
competition there is in the market, the better the price and choice that are available
for customers. AT&T’s plans bring up
another interesting point about how their purchase would affect third party
developers and VoIP providers.
To put things in
perspective, James Stewart, of the New York Times, examined AT&T’s market
share across major markets using the Herfindahl-Hirschman Index (HHI).[9] This index is “derived from the common-sense
principle that the more competitors in a market, the lower the prices and the
greater the innovation. In short, more competitors means more competition,
which benefits consumers.”[10] With this being said, Stewart found that
AT&T would have close to, if not more, than the majority of the markets in
their grasp; Seattle being a 53.2 percent concentration for the company.[11]
With AT&T having the potential to further
dominate the market, they could theoretically develop new technology in-house
or acquire third party developers. This
would, again, limit consumers and businesses with choices. One could argue that third party developers
would have to comply with AT&T standards when developing new technologies. If third parties have to implement AT&T
standards for their technologies, compatibility issues could force T-Mobile
customers into buying new mobile devices, or services, at higher prices. Since AT&T also provides internet services,
pricing, again, will increase, but an even more important issue arises and it’s
that of net neutrality, which could affect not only customers, but VoIP
providers as well.
According to PC Magazine, net neutrality is a “level
playing field for Internet transport. It refers to the absence of restrictions
or priorities placed on the type of content carried over the Internet by the
carriers and ISPs that run the major backbones. It states that all traffic be
treated equally; that packets are delivered on a first-come, first-served basis
regardless from where they originated or to where they are destined.”[12] With AT&T
eliminating T-Mobile as a competitor, T-Mobile would not have a chance to
further develop its internet services.
Currently, if you look at AT&T’s website, att.com, and T-Mobile’s
website, t-mobile.com, their internet offerings appear to be in various stages
of development. AT&T’s UVerse offers
high speed internet, cable and voice[13] while T-Mobile’s
internet package is fairly non-existent with the exception of their Wi-Fi
network.[14] What this means
for AT&T is that they have the potential to further erode net neutrality
with one less competitor to worry about.
This sentiment is mirrored by Erik Sherman of BNET when he states, “…carriers
have already effectively killed the idea of net neutrality by getting the FCC
to agree that it shouldn’t apply to wireless because it was a growing industry.”[15] This leads to VoIP carriers.
VoIP, or Voice over IP, converts “analog audio
signals, like the kind you hear when you talk on the phone, and turning them
into digital data that can be transmitted over the Internet.”[16] By using VoIP, a
person can effectively make free phone calls using the internet and cut
telecommunication companies, like AT&T, out of the loop.[17] Now, if AT&T bought
T-Mobile, they would have the ability to further compete with VoIP carriers,
such as Vonage. The interesting twist to
this is, with fewer competitors in the market, AT&T could impose
restrictions on their internet framework by decreasing the access speed to VoIP
providers, forcing customers to switch over if they want better quality VoIP
services at higher prices.
In closing, the Justice Department made the
correct choice of blocking AT&T’s plan to buy T-Mobile.
References
Going
deep on AT&T-T-Mobile merger: How will it really impact wireless
competition? (2011). TMCnet.com. Retrieved September 13, 2011 from http://www.tmcnet.com/usubmit/2011/08/22/5722088.htm
Net
Neutrality. (2011). PCMAG.com. Retrieved September 13, 2011 from http://www.pcmag.com/encyclopedia_term/0,2542,t=Net+neutrality&i=55962,00.asp
Stewart,
J. (2011). Antitrust Suit Is Simple
Calculus. New York Times. Retrieved
September 13, 2011 from http://www.nytimes.com/2011/09/10/business/att-and-t-mobile-merger-is-a-textbook-case.html?_r=2&pagewanted=1&t&sq=at&st=cse&scp=5
UVerse
High Speed Internet. (2011) AT&T.com. Retrieved September 13, 2011 from http://www.att.com/shop/internet/#fbid=vpI-Lb-cdIc
Sherman,
E. (2011). AT&T Wants Ma Bell Back,
but It’s Not Happening… and That’s a Good Thing. BNET.com.
Retrieved September 13, 2011 from http://www.bnet.com/blog/technology-business/at-t-wants-ma-bell-back-but-its-not-happening-8230-and-thats-a-good-thing/12616
T-Mobile
Hot Spot. (2011). T-Mobile.com.
Retrieved September 13, 2011 from http://www.tmobile.com/shop/addons/services/information.aspx?PAsset=InternetEmail&tp=Svc_Tab_HotSpot
United
States v AT&T INC., T-Mobile USA INC., and Deutsche Telekom AG Case
1:11-cv-01560 August 31, 2011
Valdez,
R. & Roos D. (2001). How VoIP Works. How
Stuff Works. Retrieved September 13,
2011 from http://communication.howstuffworks.com/ip-telephony.htm
Wyatt,
R. (2011). U.S. Moves to Block Merger
Between AT&T and T-Mobile. New York Times. Retrieved September 13, 2011 from http://www.nytimes.com/2011/09/01/technology/us-moves-to-block-merger-between-att-and-t-mobile.html?pagewanted=1&t&sq=at&st=cse&scp=9
[1] Wyatt,
R. (2011). U.S. Moves to Block Merger
Between AT&T and T-Mobile. New York
Times. Retrieved September 13, 2011 from
http://www.nytimes.com/2011/09/01/technology/us-moves-to-block-merger-between-att-and-t-mobile.html?pagewanted=1&t&sq=at&st=cse&scp=9
[2] United
States v AT&T INC., T-Mobile USA INC., and Deutsche Telekom AG Case
1:11-cv-01560 August 31, 2011, P.3
[3] Wyatt,
R. (2011). U.S. Moves to Block Merger
Between AT&T and T-Mobile. New York
Times. Retrieved September 13, 2011 from
http://www.nytimes.com/2011/09/01/technology/us-moves-to-block-merger-between-att-and-t-mobile.html?pagewanted=1&t&sq=at&st=cse&scp=9
[4]
Ibid
[5]
Ibid
[6]
Ibid
[7]Going
deep on AT&T-T-Mobile merger: How will it really impact wireless
competition? (2011). TMCnet.com.
Retrieved September 13, 2011 from http://www.tmcnet.com/usubmit/2011/08/22/5722088.htm
[8] Going
deep on AT&T-T-Mobile merger: How will it really impact wireless
competition? (2011). TMCnet.com.
Retrieved September 13, 2011 from
http://www.tmcnet.com/usubmit/2011/08/22/5722088.htm
[9]Stewart,
J. (2011). Antitrust Suit Is Simple
Calculus. New York Times. Retrieved September 13, 2011 from
http://www.nytimes.com/2011/09/10/business/att-and-t-mobile-merger-is-a-textbook-case.html?_r=2&pagewanted=1&t&sq=at&st=cse&scp=5
[10]
Ibid
[11]
Ibid
[12] Net
Neutrality. (2011). PCMAG.com. Retrieved
September 13, 2011 from
http://www.pcmag.com/encyclopedia_term/0,2542,t=Net+neutrality&i=55962,00.asp
[13] UVerse
High Speed Internet. (2011) AT&T.com.
Retrieved September 13, 2011 from http://www.att.com/shop/internet/#fbid=vpI-Lb-cdIc
[14] T-Mobile
Hot Spot. (2011). T-Mobile.com. Retrieved September 13, 2011 from
http://www.tmobile.com/shop/addons/services/information.aspx?PAsset=InternetEmail&tp=Svc_Tab_HotS
[15] Sherman,
E. (2011). AT&T Wants Ma Bell Back,
but It’s Not Happening… and That’s a Good Thing. BNET.com. Retrieved September 13, 2011 from
http://www.bnet.com/blog/technology-business/at-t-wants-ma-bell-back-but-its-not-happening-8230-and-thats-a-good-thing/12616
[16] Valdez,
R. & Roos D. (2001). How VoIP Works. How Stuff Works. Retrieved September 13, 2011 from
http://communication.howstuffworks.com/ip-telephony.htm
[17]
Ibid
