AT&T Calls T-Mobile Deal Good For Consumers - InformationWeek

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9/11/2011
11:06 PM
Ed Hansberry
Ed Hansberry
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AT&T Calls T-Mobile Deal Good For Consumers

Telecom company challenges DOJ lawsuit, says acquisition will produce better service and lower prices.

Last month, the Department of Justice filed a suit to halt AT&T's acquisition of T-Mobile. The DOJ claims that innovation and competition would be hindered by the deal and consumers would suffer from higher prices and lower quality. The deal would leave the U.S. market with two top tier carriers, AT&T and Verizon. AT&T responded to the DOJ's complaint with a filing Friday arguing that isn't a problem.

Right now AT&T and Verizon are the big boys on the block, but there is sufficient competition from T-Mobile and Sprint that there are considered to be four major players. If T-Mobile is swallowed, AT&T becomes massive and Verizon isn't far behind. Sprint, on the other hand, is a distant third--very distant.

AT&T is taking the position that the DOJ is overlooking efficiencies that the merger would make and is misreading the true competitive situation among cellular carriers. FierceWireless has AT&T's entire filing. In contrast to the DOJ's claims about pricing, quality, and competition, AT&T states:

"The combination of T-Mobile and AT&T is good for consumers. Integrating the two networks will free up spectrum and create substantial new capacity to meet the spectacular growth in demand resulting from an increasingly online world. The new network will be more than the sum of its parts: as a result of engineering efficiencies enabled by the transaction, the combined capacity of the new firm will be significantly greater than what the two companies could do separately. That means increased output, higher quality service, fewer dropped calls, and lower prices to consumers than without the merger."

Some of that makes sense. If you combined the two networks and got everything on the same set of frequencies, you get a larger network footprint and thus a better experience, both for voice and data. I am not sure how that directly translates to lower prices though. I see how it translates to lower operating costs for AT&T, but lower prices? More often than not, companies take lower cost structures and either boost their bottom line, or cut pricing to gain share at the expense of competition. Either way, the DOJ has a valid argument.

Regarding competition, AT&T said: "Rather than substantially reducing competition, the combined firm will usher in more intense competition to an already vibrantly competitive market."

Well, AT&T has a bit more of a sales job on that one. The reason competition would get more intense is the new larger AT&T would leapfrog everyone else, able to provide coverage and capabilities only Verizon could hope to match. Sprint would try, but honestly would have no chance to compete at that level, any more than a regional carrier could realistically compete with the national carriers.

Experts give this deal a less than 25% chance of going through now that the DOJ has weighed in against it. I don't think AT&T's latest argument will do much to sway opinions.

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