October 4, 2012
Consumers would normally shake their heads in dismay at news of yet another market-shrinking telecom merger.
But T-Mobile USA gobbling up rival MetroPCS is one of those rare examples of a corporate roll in the hay actually being in consumers' best interest — at least for a while.
Short term, a revitalized T-Mobile helps prevent the near-duopoly of Verizon and AT&T from owning the entire wireless market.
"Given the power of AT&T and Verizon, it's understandable that T-Mobile has to get creative to compete," said John Bergmayer, senior staff attorney for the advocacy group Public Knowledge. "It's a tough call, but on balance I think that the industry will be better off with a stronger T-Mobile."
Longer term, however, all this merger does is set the table for even more consolidation. The most likely scenario: A few years down the road, Sprint and T-Mobile will say they need to merge to compete with the two heavyweights.
And a few years after that, Verizon or AT&T will make a play for whatever's left.
"It's the way the market is structured," said Linda Sherry, a spokeswoman for Consumer Action. "People tend to go with the big names. If a company is a little smaller, it becomes a takeover target."
The marriage of T-Mobile and MetroPCS won't exactly change the wireless landscape. T-Mobile is currently the fourth-largest industry player, after Verizon, AT&T and Sprint. It'll remain in that spot even after embracing MetroPCS' 9.3 million subscribers.
But T-Mobile will be in a better position to serve as a lower-cost alternative to the other guys with its greater market share, particularly in light of the compatibility of its and MetroPCS' next-generation 4G networks. The two companies' current networks don't technologically mesh.
Officially, MetroPCS is the one taking over T-Mobile. This is being done to give the merged entity a publicly traded stock (MetroPCS'). But the merged company will operate under the T-Mobile name and will be run by T-Mobile's chief exec. T-Mobile's parent, Deutsche Telekom, will own about three-quarters of the stock.
MetroPCS' non-4G network will be shut down by 2015, in effect marking the demise of the company.
You don't need a way-back machine to recall the last time T-Mobile was in play. It was just last year that AT&T tried to acquire the company for $39 billion. Federal regulators put the kibosh on that little get-together, rightly concluding that such a loss of competition wouldn't be good for consumers.
So how are things different this time?
Authorities will now almost certainly conclude that joining the country's fourth- and fifth-biggest wireless providers will be good for consumers because, even though we'll lose a market player, another gets a little stronger.
And the one getting stronger isn't named Verizon or AT&T.
Rep. Anna G. Eshoo (D-Menlo Park), who sits on the House Subcommittee on Communications and Technology, signaled the friendlier disposition toward the latest merger.
"At a time when two companies continue to dominate the wireless marketplace, the need for a strong national competitor has never been greater," she said. "The proposed merger of T-Mobile and MetroPCS has the right ingredients to provide consumers with a viable alternative for wireless voice and data service."
That's probably true. But let's not lose sight of the bigger picture.
Despite wireless companies' repeated claims of forward thinking, they've largely abandoned a commitment to winning customers through innovation, let alone superior pricing or service.
What we're seeing instead is intense jockeying to snatch up as much wireless spectrum as possible and thus deny rivals access to an increasingly scarce and costly requirement.
In August, the Department of Justice gave Verizon the go-ahead to purchase wireless spectrum from the cable industry for $3.6 billion.
That same month, AT&T said it would spend about $600 million buying NextWave Wireless in its own bid to lock up more bandwidth. AT&T is also expected to bid aggressively for airwaves that Verizon has to shed as part of its spectrum deal with the cable business.
Basically, AT&T and Verizon, with their seemingly bottomless pockets, are buying their way to wireless dominance, rather than competing toe-to-toe on pricing or pumping big bucks into technological advances.
This will leave less coverage available for Sprint and T-Mobile, which will inevitably conclude that yet another merger will be the only way they can remain viable. Regulators, in turn, will be forced to say that having three players is better than two.
And so it goes.
T-Mobile's CEO, John Legere, hailed his company's merger with MetroPCS as "thrilling news" and "a terrific opportunity for two companies with a shared commitment to innovation and customer service to come together to improve the way you communicate."
"We're here to compete," he declared.
Enjoy the party. While it lasts.
David Lazarus' column runs Tuesdays and Fridays (and occasionally in between). He can also be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send tips or feedback to email@example.com.
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