Singel-Minded: Why Feds Are Right to Block AT&T, T-Mobile Merger

ANALYSIS - The feds unexpectedly walked into a federal court Wednesday to file a lawsuit seeking to block AT&T from buying T-Mobile for $39 billion.

Though you'll likely hear a lot of bitching and moaning about the move from politicians in the coming days, this is best thing to come out of Washington, D.C., since the Do-Not-Call list.

For those who haven't been watching, AT&T is seeking to become the nation's largest wireless carrier by outright buying T-Mobile, the nation's fourth largest carrier. AT&T says the merger will help with its urban congestion problems, let it hire more people and allow it to extend 4G to more than 97.3 percent of the population (current plan is 80 percent).

But public interest advocacy groups, the number three carrier Sprint, and now the Justice Department say those arguments don't stand up to scrutiny. They argue that letting AT&T become the nation's largest carrier would lead to higher prices, worse service and decreased innovation in the wireless space.

And they are exactly right.

Under anti-trust law the feds' job in the case of approving horizontal mergers is to prevent competition problems before they happen. Given that AT&T would have more than 43 percent of the market, and combined with Verizon would have more than 80 percent of the U.S. market, there's cause to be concerned the two could start colluding -- without even needing to talk to one another.

Moreover, AT&T is a tech laggard. Name any innovation in wireless and AT&T will land about dead last in the order of rolling it out, except for maybe one -- locking up the iPhone for a long exclusive.

Techies have already seemed to have forgotten that telecoms and the greater tech world are naturally enemies, and the carriers stifled innovation for as long as they could -- until Apple blew a hole in their walled gardens.

But even in the smartphone era, wireless providers don't want to see themselves turned into the equivalent of the ISPs you pay to deliver internet to your house. Despite installing low caps on wireless data (which has zilch to do with network congestion), AT&T and Verizon are seeking out those who would use even a part of that allotment to use their wireless phones as modems for a laptop.

And thanks to a cowardly FCC, they are free to do so, even though if a major landline ISP tried to charge customers more for using a wireless router at their home, the FCC would try to stop that.

As for the proposed benefits, AT&T says that buying T-Mobile will allow it to expand its LTE 4G network to 97.3% of the population.

But the company accidentally let slip in filings supporting the merger that it would cost only $3,8 billion for the company to shift its current plan of action to cover 80% of the population to get to 97.3% - a tenth of the price AT&T is seeking to pay to buyout its competition.

While that might seem like a lot of money, it's not even a single quarter of profit for AT&T.

AT&T's argument would be stronger if T-Mobile's coverage map was very different from AT&T's, but you have to squint hard at the companies' coverage maps to see any difference.

Basically, AT&T is trying to hold the feds hostage, saying that if you don't let it buy out its competition and become the biggest carrier in the country, the rural folks are going to be left in the age of the Razr.

Wired pushed AT&T to go on the record explaining how it's just not possible for the company to find the extra $3 billion to blanket the country unless it's allowed to spend $39 billion. AT&T's PR firm promised to find an executive to talk us through the convoluted reasoning, but then reneged without explanation.

So what would be the worst case for Americans if AT&T were to swallow T-Mobile?

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Higher Prices - With market power comes the ability to raise prices and do so in unspoken collusion with the other big players. For an example of that, you need only look at AT&T's recent elimination of its $10 for 1000 texts per month plan, which left users with the choice of paying 30 cents a text or paying $20 for unlimited texts - a crappy choice given that the average user sends about 700 texts a month.
Fewer cool handsets available on other carriers - Once AT&T got even bigger, the company would have even more power to strongarm device makers like HTC to not sell its best devices to other carriers.
More power over regional and small carriers - AT&T is already notorious for playing unfair with roaming agreements with smaller carriers, and for charging exorbitant rates for the backhaul lines that connect cell towers to the greater internet. With greater market share, the power to squeeze companies like Cincinatti Bell Wireless in quiet, behind-the-scenes ways will only get bigger.

Sadly, some of the nation's biggest tech players rallied to AT&T's defense. Facebook, Yahoo, and Microsoft, among others, filed a petition in support of the merger, buying into AT&T's threat not to build out a nationwide 4G network unless it got to buy T-Mobile.

In their letter (.pdf), the tech giants wrote:

AT&T has indicated that it will migrate the T-Mobile network to LTE technology and offer LTE-based wireless broadband to 97.3 percent of the U.S. population. AT&T has stated that its LTE deployment will bring significant benefits to residents of rural areas and smaller communities, where the benefits of real-time video and similar capabilities are most urgently needed to fill gaps in physical infrastructure for healthcare,
education, and other social needs. [...]
The FCC must seriously weigh the benefits of this merger and approve it. Such action will help to meet the near term wireless broadband needs of consumers and ensure that we are globally competitive as the world increasingly embraces wireless broadband connectivity.

It's nice of these companies to pay lip-service to the needs of education, but the real reason they sided with AT&T is simple near-term economics for those companies. The more people use 4G, the more their products will be used and the more money they will make, regardless of the cost to American's monthly bank balances.

Wired asked the three companies if they were re-thinking their support, which AT&T likes to trot out, in light of the Justice Department's filing on Wednesday.

Microsoft declined to comment, while Facebook and Yahoo simply ignored our e-mails seeking comment.

That's a shame. It's pretty clear to those companies users that they were going to get screwed one way or another by this deal, and those companies should take the opportunity to say, "Sorry, we screwed up. It's clear now that AT&T could build a nationwide network on its own and we think having competition is a good thing. Our bad."

Of course, it's not clear whether T-Mobile can continuing operating much longer, given its parent company Deutsche Telekom has said it's not going to be sinking more money into the company. But if the merger is rejected, T-Mobile will get $3 billion in much-needed cash, some AT&T spectrum and some rights to cheaper calls into the AT&T network.

That might be enough for an independent T-Mobile to strike some interesting deals with smaller players like Leap or MetroPCS or find some ways to work with Clearwire or LightSquared to expand its spectrum footprint. There are plenty of avenues left for a maverick in a four national carrier world.

And T-Mobile has long played that maverick role, keeping Verizon and AT&T from abusing their dominance too much -- embracing Android first and aggressively pushing unlimited service plans, among other initiatives.

As the Justice Department notes "AT&T’s acquisition of T-Mobile would eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace. "

While AT&T is to be commended for finally beefing up its 3G network over the last year or so, AT&T isn't an innovator.

Wireless service is already too important to Americans' daily lives and our economy to be put into the hands of companies like AT&T and Verizon. Breaking into this industry isn't a trivial endeavor, especially if you are trying to go national.

The current crop of pre-paid operators and smaller local players aren't enough to keep AT&T and Verizon honest.

And finally, we'll add there's a bit of schadenfreude to having the Justice Department block this deal.

AT&T is the single largest corporate donor to politicians and it's used to getting its way. After the company got caught allowing the NSA to run rampant on its network, spying on Americans without court orders, AT&T ran to Congress and bought its way out of lawsuits filed by Americans seeking due process.

That go round, the Justice Department sided with AT&T over Americans.

This go round, the Justice Department is realizing that what's good for AT&T isn't often what's good for Americans -- no matter how many lobbyists and political donations Ma Bell can afford.

Photo: AT&T and T-Mobile smartphones, side by side. Credit: Misterjt