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Winners, Losers In AT&T, T-Mobile Merger

4/04/2011 12:01:00 AM Eastern

NEW YORK — AT&T contended its proposed acquisition of T-Mobile offers multiple consumer benefits, but existing T-Mobile subscribers could see a downside. And for players within the industry, there are potential losers and winners.

To regulators, AT&T is justifying the merger of the two carriers’ networks by saying the merger will quickly relieve the network congestion that plagues both carriers in key markets. Longer term, the company said, the two networks’ combined spectrum capacity will meet growing demand for faster data service throughout the nation while the government continues its search for 500MHz of new wireless voice and data spectrum, which the government says is needed if the country is to avoid spectrum overload.

As for the deal’s impact on competition, AT&T said the combination of the nation’s second- and fourthlargest carriers, by subscriber base, will still leave the country with at least five competing carriers per market.

AT&T, however, hasn’t volunteered that the combined AT&T/T-Mobile entity and Verizon Wireless, the current No. 1 carrier, would jointly hold more than 70 percent of the U.S. subscriber base of 302.9 million at the end of 2010. Nor has AT&T mentioned that the combined entity would, according to a Merrill Lynch report, own 44 percent of the postpaid and 31 percent of the prepaid market.

As a result, some analysts contended, the proposed acquisition could spur another round of consolidation as Verizon and Sprint try to purchase smaller carriers to maintain a balance of market power in the economies- of-scale arms race. That would leave consumers with even fewer carrier choices than they would have after an AT&T/T-Mobile merger.

AT&T also hasn’t said much about the merger’s potential impact on T-Mobile’s current subscriber base, handset vendors, CE retailers, and wireless-specialty chains that exclusively sell either AT&T or T-Mobile service. Also left unsaid is the potential loss by Brightpoint of T-Mobile’s logistics business.

In the end, no one will feel any impact if an activist Federal Communications Commission (FCC) or Department of Justice strikes down the proposal. If regulators don’t strike down the acquisition, analysts believe the FCC will at a minimum force AT&T to divest itself of bandwidth and subscribers in select markets to reduce the merged entity’s market power.

For AT&T, the acquisition is a logical step in offering better service because, as a Yankee Group report says, “The combined company should be better than either AT&T or T-Mobile alone in addressing network service quality.” AT&T, the report continued, “has few other options beyond this merger to expand its spectrum holdings and address key cell sitting issues in its major markets [where capacity is a problem].”

For AT&T and T-Mobile consumers, the potential service improvements in capacity-constrained markets would be a positive, but the potential downside for existing subscribers could be higher cost service plans, analysts noted. “T-Mobile customers are drawn to its value, no-contract status, service innovation, and customer service traits — all of which are largely lacking at AT&T,” a Yankee Group report said. “T-Mobile’s month-to-month focus vs. AT&T’s two-year contracts represents a huge potential shift for consumers, especially if AT&T pushes the T-Mobile user base towards its more expensive smartphones contracts. Too hard a push and AT&T will lose subscribers.”

Certainly, analysts contend, many people will lose their jobs as the two carriers look to rationalize costs. The rationalization will include salespeople and store managers in stores owned by AT&T and T-Mobile. Each carrier operates about 2,000 stores, and the acquisition will allow for a “significant rationalization” of the carriers’ store counts, said Yankee Group VP Eugene Signorini.

Wireless specialty chains that specialize in selling either T-Mobile or AT&T service could also face hard choices if the combined entity decides that it doesn’t need so many wireless specialty stores exclusively selling its service in select markets.

For CE retailers selling multiple carrier services, the retailers will lose some leverage in negotiating terms, as will handset vendors. Investment banker Canaccord Genuity, for example, said it views the acquisition “as negative for handset OEMs as we anticipate increased negotiation power for AT&T and Verizon could result in increased pricing pressure, particularly for Android smartphones.”

The combined entity could also reduce the number of handset vendors that it deals with, or the number of SKUs that it offers, or both, potentially reducing the selection of handsets available to consumers, some analysts noted.