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The New York Times is wrong on Sprint, T-Mobile

Posted January 1st, 2014 in antitrust, Sprint, T-Mobile USA and tagged , , , by Alton Drew

The editorial board of The New York Times has come out swinging against Sprint‘s (NYSE:S) speculated combination with T-Mobile (NYSE:TMUS).  SoftBank (OTC:SFTBY), a Japanese wireless provider, owns a controlling interest in Sprint.  Should an acquisition be approved by regulators, namely the Federal Communications Commission and the United States Department of Justice, the four largest national carriers would be reduced to the three largest national carriers and such a shrinkage, according to The Times would negatively impact consumers.  Here is the crux of The Times’ argument about the impact on consumers:

“As an independent company, for instance, T-Mobile has recently cut prices aggressively and simplified its cellphone plans. Its phone plans are often much cheaper than comparable packages offered by other cellphone companies. It no longer forces customers into two-year contracts; its subscribers can switch to another wireless firm whenever they like. And it slashed the high international roaming charges it levies on calls customers make when they are traveling abroad and eliminated roaming charges for text messages and Internet service.”

To me, that is not a valid argument to base a rejection of a combination.  T-Mobile’s decision to provide cheaper comparable packages resulted from its ability to identify a niche, an underserved market that could have been left out of the market for wireless broadband services.  It would be bad business judgment for SoftBank to ignore this market especially since T-Mobile’s corner on the underserved market is one of the linchpins of  the company’s success.  SoftBank would still have to compete with AT&T and Verizon and extinguishing an important part of T-Mobile’s business model would be like bringing a knife to a gunfight.

The Times is wrong on this one.

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Speaking of Free Market-based Spectrum Allocation …

Posted May 9th, 2012 in MetroPCS, Sprint, T-Mobile USA, wireless communications and tagged , , , by Alton Drew

Looks like MetroPCS and T-Mobile USA are thinking of hooking up. T-Mobile and MetroPCS are allegedly in merger talks, according to Investor’s Business Daily. The transaction would see the combined company come under control of T-Mobile’s parent, Deutsche Telekom. AT&T was unsuccessful in its bid for T-Mobile, and Sprint had its eyes on MetroPCS but I guess couldn’t close the deal.

If the deal is approved, the two companies would be able to acquire spectrum from each other and have at least 42.8 million customers.

Will the Federal Communications Commission play spoiler? I don’t think so. This transaction gives the FCC an out for two reasons. First, approving the transaction will show that the FCC is willing to allow the market and not Don Quixote politics to allocate spectrum. Second, it takes the FCC off the hook for putting the number four wireless carrier in a position where it was considering saying auf wiedersehen to the American market.

Again, Sprint may be left without a date to the dance.

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Did the federal government read its own jobs situation report?

Posted December 5th, 2011 in antitrust, AT&T, T-Mobile USA, wireless communications and tagged , , , by Alton Drew

Profound editorial in the Lowell Sun today about the approach to the AT&T, T-Mobile merger that the federal government is taking. “Too big to allow” seems to be the mantra, as two federal agencies and a federal court hold the two companies futures in their hands.

The hung up, according to the Federal Communications Commission (which has conveniently inserted itself into the antitrust expertise category along with the Federal Trade Commission and the U.S. Department of Justice) is that prices may rise; a competitor may be eliminated; and jobs would be lost.

History over the last decade has shown that prices have fallen, even after a number of wireless mergers, including AT&T and Cingular wireless. Smaller carriers should be given credit for bringing innovative products into the wireless markets and helping to drive prices down. Why should we not expect new entrants to continue the trend of taking advantage of new opportunities to brong innovative products into the market in the wake of another merger? Why shouldn’t we expect prices to fall even further?

Does the FCC need a reminder that they have not yet declared that the wireless market is competitive? How can the removal of T-Mobile USA now have any more detrimental impact on the market than its elimination by its own parent?

And talk about job loss. Over 300,000 people left the labor force in November. Does allowing T-Mobile to fade away make really support a “jobs creation” policy?

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CNN joins the five-myths club

Posted December 1st, 2011 in antitrust, AT&T, FCC, Government Regulation, T-Mobile USA and tagged , , , by Alton Drew

I guess when it’s time to pile on, it’s easier just to copy cat what’s already out there. CNN appears to be following the line started in a recent article about the alleged five myths surrounding AT&T, Inc.’s proposed takeover of T-Mobile USA. T-Mobile is a subsidiary of Deutsche Telekom.

CNN claims that it’s a myth that prices will not stay the same for T-Mobile’s old customers should the acquisition go through. Guess what? Prices should not stay the same into the future for any wirless provider. Why? Because the demand for wireless services, including voice and data is going up through the roof. Prices will eventually have to increase in order for wireless carriers to provide service.

What AT&T has offered is to take a temporary hit should it obtain T-Mobile’s old customers. By honoring the current T-Mobile pricing plans, AT&T is willing to pay a premium not only to keep T-Mobile’s customers happy, but to obtain a valuable reource–spectrum. AT&T is correct when it says that with greater capacity it should be able to provide services at a lower per unit cost. It is probably another reason the company can eat the lower prices because the acquisition will make it possible.

The truth that CNN does not provide in its piece is that barring some option where AT&T and T-Mobile pursue a joint venture, T-Mobile will likely hand over the $4billion breakup fee to its parent, Deutsche Telekom, and leave town. If that happens, expect to see all carriers jack up rates as they are expected to take on the new subscribers and see their spectrum and other resources come other increased strain.

Regarding job losses, there is a difference between the creation of new jobs and adding jobs to the existing AT&T and T-Mobile labor force. AT&T never promised that every job would not be destroyed. I would expect a company in a competitive market to minimze labor costs. If it didn’t, the inefficiencies from not properly managing labor would eventually leak into prices, giving every grass roots group this side of the Atlantic a reason to complain to the FCC about price gouging.

The tech sector continues to innovate. Programmers are out there building apps for hardware and other services. Technologists are learning everyday how to get one more mega cycle of bandwidth out of the air for use. These are some of the indirect jobs being created.

For the CNN article to characterize AT&T’s decision that it was “highly unlikely” there would be growth beyond 80% of coverage without T-Mobile as a lie is beyond the word, stretch. All business decisions are based on probabilities and contingencies. Should we really accept the FCC’s willingness to trump a going concern’s business judgment because of a lack of definitiveness? Come on, CNN. There is a reason certain costs associated wwith building out are referred to as variable costs.

CNN has also bought off on the FCC’s poor view of competition. In general, a competitive market does not guarantee success. Many a business has entered many a market only to end up in the graveyard of the free market. Besides, CNN should have taken the FCC’s price rise argument to its logical economic conclusion. If prices were to rise, new entrants would come knocking on the door. Whether they knock the door down should be left up to their entrepreneurial capabilities, not the desires of the FCC.

Finally, as AT&T’s economies of scale increases, its marginal cost for serving one additional consumer should approach zero.

CNN should either take a course in microeconomics or be more balanced in its assessment of a business decision.

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FCC rubs salt in AT&T wounds. Not cool …

Posted November 30th, 2011 in AT&T, FCC, Government Regulation, T-Mobile USA and tagged , , by Alton Drew

AT&T was caught off guard by the release of a FCC staff report that took issue with claims made by AT&T that the acquisition of T-Mobile would bring about certain benefits, including increasing the amount spectrum available to the carrier, the repatriation of 5,000 call center jobs, and the creation of hundreds of thousands of indirect jobs.

AT&T took immediate issue with the release of the report. Jim Cicconi, AT&T Senior Executive Vice President-External and Legislative Affairs, stated that “The FCC has recognized that it is required by its own rules to dismiss our merger application. This makes all the more troubling their decision to nonetheless release a preliminary staff report on the merger. This report is not an order of the FCC and has never been voted on. It is simply a staff draft that raises questions of fact that were to be addressed in an administrative hearing, a hearing which will not now take place. It has no force or effect under law, which raises questions as to why the FCC would choose to release it. The draft report has also not been made available to AT&T prior to today, so we have had no opportunity to address or rebut its claims, which makes its release all the more improper.”

The move by the FCC to release its draft report raises another issue, that being whether the decision was motivated by politics versus regulatory necessity. Releasing a report that has not been challenged by a hearing process gives the impression that the FCC has been biased against the transaction for some time. Did AT&T ever have a chance?

Also, did the public ever have a chance? There is no evidence that the report has been released to the public for review and comment. Given information being presented in the media, it is not too far a leap to conclude that the Justice Department is aware of the findings and that this knowledge may result in reducing the likelihood of a settlement.

In short, what did the FCC hope to gain by releasing the report?