Originally published: June 6, 2011
Last updated: June 6, 2011 - 3:23pm
In March 2011, AT&T announced that it was planning to acquire T-Mobile USA for $39 billion. This was the unexpected culmination of months of rumors about the sale of the ailing T-Mobile. Many analysts had seen Sprint as the most likely partner, but it was AT&T that made the successful bid after it was approached by T-Mobile parent Deutsche Telekom.
Quick research gathered from the Web sites of various wireless providers presents a set of facts that do not support claims that T-Mobile is the lowest-cost provider. Furthermore, trend lines for wireless pricing before and after wireless mergers do not support the theory that the merger will lead to price increases. As the late Sen. Daniel Moynihan (D-NY) famously said: "We are all entitled to our opinions, but not our own facts." Nationwide, consumers have at least three offers available to them that are lower in cost than T-Mobile's current offerings. Boost Mobile, which is owned by Sprint, and Tracfone's Straight Talk both offer nationwide plans that provide a lower-cost option. In fact, Sprint's Boost Mobile, Leap Wireless, Metro PCS, and Straight Talk are all gaining customers, while T-Mobile's higher-priced services are losing customers. It is highly doubtful that Sprint, Leap, Metro PCS, and Tracfone will raise prices while competing vigorously against each other for customers at the low-cost end of the market, just because a higher-priced competitor is no longer competing.
The best way to describe T-Mobile at this time is as "the most expensive low-cost phone provider"--an oxymoron indeed, and the exact reason for T-Mobile's customer losses. The root of T-Mobile's current churn and customer drop-offs lies in the lack of focus on a clear consumer segment. The provider's plans are too expensive to appeal to customers who seek low-cost plans, while it is unable to provide a network that will satisfy the demands of customers who are willing to pay a premium.
Another popular argument against the merger is that prices would rise--a claim made in regard to every proposed merger. In the wireless industry, however, this has not been proved; in fact, it is quite the contrary.
What is perhaps even more interesting is that Sprint, while loudly opposing the acquisition, will in all likelihood be the biggest winner from T-Mobile's disappearance. It is already the best-positioned value provider in the wireless industry. Sprint's postpaid plans are providing great value, while its Boost brand is a leader in the disruptive unlimited segment, and its Virgin Mobile brand is well represented in the per-minute prepaid segment. No other provider has as firmly anchored itself as the low-cost provider as Sprint has, and no other carrier in the U.S. has done a better job of improving its customer service.
For Sprint, the merger (and opposing it) represents a win-win opportunity. By opposing the merger, Sprint makes the lives of two of its competitors more difficult and increases the chance Sprint will secure extensive and favorable conditions on the merged entity. If it succeeds in blocking the merger, Sprint will have forced AT&T and T-Mobile to waste an entire year of valuable management time that could have been used to make Sprint's life more difficult. T-Mobile would be in a particularly difficult position to reinvigorate a workforce and attract new customers. After all, how do you gain customers when your company is viewed as uninterested in staying in the United States and without a vision for the future, but was forced by regulators to still compete? In sum, opposition based on fears of price increases or a sense that T-Mobile is the lowest-cost provider, and therefore needs to remain a standalone company, is wrongheaded, because it's not based in reality.
[Entner is the founder of Recon Analytics]
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