Column: AT&T/T-Mobile merger raises concerns of a telecom duopoly

By Kenny Kyunghoon Lee

AT&T’s acquisition of its competitor, T-Mobile, will give birth to a new juggernaut in the American telecommunications industry, producing a company which can supposedly better serve its customers by providing a faster and stronger network. But is it really worth risking consumer interests?

The merger between AT&T and T-Mobile, the second- and fourth-largest wireless service providers respectively, is expected to create a duopoly of AT&T and Verizon Wireless, which makes the market far more consolidated than necessary. The deal, which is expected to close in a year, makes AT&T by far the largest service provider in the nation with 130 million total subscribers. Various market analysts are raising concerns over the upcoming change in the market.

AT&T justified the acquisition in a statement on March 20, claiming that the acquisition will benefit the customers by “enhancing network capacity, output and quality in near term for both companies’ customers.” This statement is realizable as AT&T and T-Mobile have similar technology, and their networks, which already cover large areas of the country, can contribute to each other to create an even stronger and faster wireless network.

However, it still seems that consumers have more to lose than to gain. The customers may enjoy enhanced services after the acquisition, but they have to expect a future increase in price when two or three behemoths dominate the market.

Concerns over future price hikes are well-founded. AT&T presents itself as the provider of the highest quality mobile services, which collides with T-Mobile’s brand image as a provider of affordable services. Thus, some of T-Mobile’s more price-efficient contracts may be terminated or altered to maintain AT&T’s brand image and profit margins. In a recent media release by T-Mobile, the company suggested that future rate plans may be subject to a price increase. T-Mobile merely states “all customer contracts entered into before the change of ownership will be honored (for their applicable period),” suggesting the looming possibility that prices may rise in the future.

Moreover, if this acquisition is approved by the regulators, it may encourage future mergers in the market. Mergers and acquisitions are very attractive options to businesses as they can take advantage of various economies of scales (various economic benefits made available by the increase in the size of a firm such as a stronger bargaining power in business deals and lower interest rates on loans). In addition, in the telecommunications industry, a bigger size usually means larger control over the market (in other words, more subscribers) and increased revenues as the companies deal directly with their customers. Once AT&T’s acquisition of T-Mobile is approved, it may encourage other mergers in the future, as they are highly profitable for telecommunications companies.

There are always banes and boons when economic decisions are made, and they have to be measured carefully. In this acquisition, at least for now, the banes seem to outweigh the boons.

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