Sprint is formally asking the FCC to deny the $39 billion acquisition of T-Mobile USA by AT&T, stating that the combined company would “lead to higher prices and poorer service in the wireless industry.” This followed last week’s Congressional hearing where lawmakers inquired about the impact of a combined company on competition in the wireless industry. AT&T, T-Mobile, the Rural Cellular Association, Consumers Union, as well as two anti-trust experts testified.
The Consumers Union prognosticated that the disappearance of T-Mobile USA “will likely lead to higher prices, not just for T-Mobile customers, but for all customers,” as it would eliminate the “largest low-cost provider” in the wireless marketplace. Some quick research gathered on the websites of various wireless providers shows a different story. As the late Senator Moynihan famously said: “We are all entitled to our opinions, but not our own facts.”
Nationwide consumers have at least three offers available to them that are lower in cost than T-Mobile’s current offerings. Boost Mobile, which is owned by Sprint, and Tracfone’s Straight Talk offer nationwide plans that provide a lower-cost option than what is available from T-Mobile. In fact, Sprint’s Boost Mobile, Leap Wireless, Metro PCS, and Tracfone’s Straight Talk are all gaining customers, while T-Mobile’s higher priced services are losing customers. It is highly doubtful that Sprint, Leap, Metro PCS, and Tracfone will raise prices while competing vigorously against each other for customers at the low-cost end of the market, just because a higher priced competitor is no longer competing.
The best way to describe T-Mobile at this time is as “the most expensive low-cost phone provider” – an oxymoron indeed, and the exact reason for T-Mobile’s customer losses. The root of T-Mobile’s current churn and customer drop-offs lies in the lack of focus on a clear consumer segment. The provider’s plans are too expensive to appeal to customers who seek low-cost plans, while it is unable to provide a sufficient network that will satisfy the demands of customers who are willing to pay a premium.
The lower cost options listed above are available to roughly the same number of Americans before a merger of AT&T and T-Mobile as after a merger of the two providers. In virtually every market, where T-Mobile is active, Sprint’s Boost service is available, as is Straight Talk. Additionally, either Metro PCS (covering approximately 100 million Americans) or Leap Wireless (covering approximately 95.3 million Americans) is also active in these markets, providing cheaper service plans that directly compete with T-Mobile USA’s offerings.
Another popular argument against the merger is that prices would rise – a claim made during every merger. In the wireless industry, however, this has not been proven; in fact, it is quite the contrary. As previously published, prices for wireless voice, messaging, and data services have declined consistently over the last several years despite claims that prices would rise after multiple wireless mergers that occurred during this time period. The below chart was included in a Recon Analytics’ Research Note from April 13, 2011 titled “What is the price of a megabyte?”
Based on The Nielsen Company’s Customer Value Metrics collection of more than 60,000 wireless phone bills per month, the price per voice minute held steady over the last two years, while the price per text messaging that consumers actually pay declined from about 2 cents to 1 cent per message, and the price per megabyte declined from 47 cents in Q3 2008 to 5 cents in 2010.
To say that T-Mobile is the only low- or lowest-cost provider or that there would be only high-priced service plans available to Americans after a merger of T-Mobile and AT&T is factually incorrect. There may be reasons to oppose the merger, but fear that it will eliminate the lowest-cost competitor is not one of them.
Perhaps what is even more interesting is that Sprint, while loudly opposing the acquisition, will in all likelihood be the biggest winner of T-Mobile’s disappearance. It is already the best positioned value provider in the wireless industry. Sprint’s post-paid plans are providing great value, while its Boost brand is a leader in the disruptive unlimited segment, and its Virgin Mobile brand is well represented in the per-minute prepaid segment. No other provider has as firmly anchored itself as the low-cost provider as Sprint, and no other carrier in the U.S. has done a better job in improving its customer service than Sprint.
When Dan Hesse took over Sprint it was dead last in customer service. In the last four years, the company has gone from being the worst to being tied for the best customer service, and this has helped to attract and retain customers. When the remaining, value-conscious T-Mobile customers are looking for a new carrier, Sprint and its fighter brands will be at the top of their consideration list, and unless Sprint raises its prices, they will most likely become Sprint customers.
It’s a funny business indeed where one of the biggest beneficiaries of a merger is one of its biggest opponents.