AT&Tmobile….Sorry I mean AT&T and T Mobile.

 

Disclaimer : Thoughts mentioned below are directly influenced by class discussion and reading different opinions about the case. 

The announcement of merger between AT&T and T Mobile USA is creating huge debate in US. Whether industry is moving towards duopoly where AT&T and Verizon will be only players and both using different technology. This merger is interesting because it means now there will be only one GSM player. Wow, so if you have a GSM phone then you are almost done. For my friends back home its like having only Airtel for GSM…Scary isn’t it.

So everyone firing bullets and bombs and everything they can find at AT&T and wanting government to disallow the merger. The merger process will take over a year and if Government disallows the merger then it will be advantage to no one. There are few reasons I am saying it.

When I see the telecom industry with huge infrastructure to manage it makes sense not to duplicate the infrastructure. AT&T and T Mobile both operate GSM services. So Synergies are huge. Cost saving will be tremendous and that saved money can be spent on upgrading the infrastructure. (I know mostly it will be distributed to shareholders rather than upgrading network). I don’t understand why people who are claiming that it will end competition accept Apple’s decision to launch Iphone and Ipad only on AT&T at the start. Was it not unfair play.

The ecosystem and devices are evolving at breathtaking pace. Devices are outsmarting the network. I believe the Industry is going towards utility approach. (I read about this in business week).  So AT&T and Verizon will be under heavy scrutiny all the time. As you have regulations, price controls in electricity industry similar regulations will start shaping in telecom industry. The biggest looser of this will be AT&T and Verizon and not consumer. You will now have 4 utilities instead of 3. Electricity, Water, Gas and Network. All other three industries are heavily regulated. Do you care who is your service provider for water? Not really as you are sure that regulations will make sure quality is in place similar thing is going to happen here. Regulation will play major role. So it is not bad for consumer but is bad for AT&T itself.

In short term of course they will gain market share, they will surpass Verizon in consumer numbers, synergies will create windfall for shareholders but in the long term that will cement its place as a Utility. That means even lower margins, no chance of innovation and heavy regulations. In the capital economy as soon as you raise the prices you will have alternatives popping up so we will have a next wave of silicon valley companies that will create new ways of communication.

So in all not allowing merger does not make sense. T mobile has already decided to sell so if you do not allow merger we will have stalemate, T mobile will start to see diminishing power and that will not help competition and infrastructure anyways. 

Signing off

Nikhil Parchure.