Last week, AT&T Wireless announced its plan to buy competing wireless carrier T-Mobile, the US wireless division of Germany’s Deutsche Telekomfor $39 billion. The move would push AT&T Wireless back into the number one carrier in the US by total subscribers over rival Verizon Wireless, and reduce the number of major national wireless providers from three from four, with Sprint a distant third in subscribers. While the move is still pending Federal Trade Commission approval, it’s not hard to come up with a list of winners and losers if the deal is allowed to go through.
Winner: Deutsche Telekom By unloading T-Mobile, the German company can extricate itself from a market where it has had only modest success at best. While it means abandoning the US market, Deutsche Telekom can focus resources elsewhere in the world where it has a better foothold.
Winner: AT&T Aside from the obviousness of retaking the lead in subscribers from Verizon, AT&T wins by taking out a competitor in T-Mobile. With AT&T and T-Mobile both using the GSM technology standard for cell phones, AT&T regularly lost potential customers for high-demand phones, such as Apple’s iPhone, through the process of jailbreaking. Once tech savvy users found a way to unlock the iPhone to free it from its technological locks with AT&T, they were free to take their phone to any GSM carrier. Given the number of complaints AT&T had about coverage and service, some potential consumers balked at signing a long-term contract with the carrier. Now, as the only major national GSM carrier left, AT&T can stop some of that loss.
Loser: Verizon Again, this is not for the obvious reasons. With AT&T reducing the number of competitors from four to three, going from three to two becomes exponentially harder to get past regulators. Verizon lost out on first mover advantage, a game theory concept meaning that by now acting second, the company is now left with fewer choices for the next move. Verizon will have a hard time convincing regulators that if it were to buy Sprint, having a duopoly in the national wireless market would be beneficial and receive approval.
Loser: Handset Makers Handset makers, such as Apple, Nokia, HTC, and Motorola, have long been at a disadvantage in the US wireless market, where carriers subsidize handsets for consumers in exchange for the consumer signing a multi-year contract. Handset makers would agree to a period of exclusivity with a carrier in exchange for access to the carrier’s subscriber base. This differs from the European market, where consumers purchase handsets at full price, but can then choose which carrier they would like service from, resulting in more competition on both the handset and carrier fronts. Now, if a handset maker wants to make a GSM phone for the US market, AT&T will have a monopoly in the national market. Yes, there are still regional carriers that could compete, but few have the resources to steal a high profile phone, such as the iPhone, from AT&T.
Loser: Consumers T-Mobile was able to compete with the larger national carriers with an aggressive pricing strategy. In addition to simply selling more minutes for fewer dollars, T-Mobile offered innovative pricing structures to get customers on board. They were the first to introduce calling a customized list of phone numbers without using monthly minutes. They also provided lower rates to customers who had purchased their phones elsewhere and wanted to use T-Mobile’s service (other carriers built a handset subsidy into the monthly service fees and charges whether or not you bought your phone from the carrier or not). In the end, the consumer loses a lower cost choice in the market that will drive up the average cell phone bill over time.
Toss-up: Sprint Sprint has several moves to consider from their position in third place. They could take up T-Mobile’s niche as low-cost alternative to the big carriers. They could throw in the towel and attempt to merge with Verizon. They could try to merge with smaller carriers, such as Metro PCS or Cricket, in an attempt to grow their subscriber base. How Sprint decides to proceed could have long-lasting ramifications on the US wireless industry.