Sunday, March 20, 2011

AT&T-Mobile: Here Comes the Wireless Duopoly

I will surely write more on this subject as this groundbreaking yet not totally surprising potential merger progresses, but I wanted to get my initial reaction and predictions out there quickly. A few weeks ago there was buzz about Sprint and T-Mobile possibly merging, my response was "didn't they learn their lesson about merging incompatible wireless technologies with Nextel?" Yet, the failures of history are doomed to be repeated, or so they say--definitely true in telecommunications anyway. So, at least from the technological perspective, AT&T + T-Mobile makes sense. From a market concentration perspective, it is the beginning of the end of any slight resemblance of a competitive wireless market. If the FCC and DOJ approve this merger, it will pave the way for Verizon to go after Sprint-Nextel, which will result in a duopoly by its truest definition--nearly equal market power divided between two behemoths, where no competitors can come close to realizing the same economies of scale or attract customers with the best handsets, plans and prices. What will happen next--AT&T/T-Mobile will merge with Verizon/Sprint-Nextel; then we will relive the 1980s with a subsequent anti-trust suit and divestiture, where the wireless monopoly will be broken into a half dozen or so Regional Wireless Operating Companies, and the cycle of consolidation will start over once again.

It has been clear for awhile now that small rural wireless carriers will not fare well in the future with customer demands for iPhones and the gigabytes of data used per month per customer expected to continue to skyrocket. The regulatory system has not been favorable to rural wireless carriers who want to acquire spectrum, and auctions typically price small carriers out of the running. Difficulties securing roaming arrangements and exclusive handset deals with the Big 4 also push small wireless carriers to the fringes of the market. How can any regional (or smaller) wireless carrier compete with a network that has 100 million customers? The networks with 50 million customers become the small carriers and the carriers with 1 million or less customers are wiped away; swallowed whole; obliterated by an increasingly anti-competitive market.

It isn't all bad news for small wireless carriers though--the rural providers who are lucky enough to still own cellular holdings (RSA's, other partnerships and the rare sole proprietors), are sitting on gold mines in terms of spectrum assets. One of the Big 4 or Big 3 or Big 1 will pay--and pay a lot--to eliminate small carriers for no better reason than to be rid of having to deal with contractual obligations and lack of total control over the airwaves. Since future funding for rural telecom providers is so uncertain, those who own wireless assets can practically be assured that they will be able to reap a sizable amount of money for these assets that can then be funneled into FTTH and other crucial broadband deployment projects and network upgrades.

I will be following this merger process very carefully as it develops, and I cannot wait to hear the response from the FCC and DOJ. Those of you who have read The Master Switch will be able to see the telecom industry cycle's great migration back to a monopoly--which is definitely scary and troubling from the small rural company perspective. However, wireless has been moving in this direction for years now without much significant opposition.

Stay tuned for my commentary about the NTCA Legislative Conference which I am attending this week! There is an amazing selection of speakers at this conference (Genachowski included), which I am very excited about.

Cassandra Heyne


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