Impact on Enterprise Customers of AT&T Acquisition of T-Mobile
T-Mobile has been the price leader in the enterprise space for some time, and it has often been seen as a good niche provider for users who travelled internationally a lot (although it has still struggled to win significant volumes of business from enterprises), and certainly helped to drive down the pricing of the other three national providers. Assuming merger approval, once existing T-Mobile contracts expire, former T-Mobile customers can expect their rates to increase to the levels in AT&T's standard plans, which are not only more expensive, but also include a concept foreign to T-Mobile subscribers--data/smartphone usage caps.
The regulatory drama that will unfold in the next 12 months will be exciting to watch, and it is interesting that Wall Street analysts are of one mind--the merger will be approved--while Washington insiders, including former FCC Chairman Reed Hundt, are far less sanguine. A Sprint-T-Mobile combination would have been far better for customers than increasing the size and market power of one of the biggest providers still further, and removing the fourth, and most price competitive, player.
And what does this bode for Sprint? The wireline space is already regarded as close to a duopoly between Verizon and AT&T, not least because Sprint gets continually weaker over time. But that has, to a certain degree, been because Sprint has focused so much on its wireless business, somewhat to the detriment of its wireline business. Once T-Mobile disappears, the enterprise wireless industry will be close to mirroring the wireline industry, with AT&T and Verizon at the top of the tree, and Sprint far behind. The key question is whether Sprint will gain from this, by being able to attract new ex-T-Mobile customers and position itself as the market price leader, or whether it will find itself viewed as the weakest player with enterprises preferring the "safer" option of AT&T or Verizon Wireless. It is possible that Sprint could position itself as an attractive wireless price leader, but that is a thin reed strategically and is well down the road. It is more likely that this merger, if approved, will leave Sprint in an even more desperate situation than before. It has already hinted to customers and Wall Street that it is just about through with iDEN and WiMax, despite past statements. Without T-Mobile, whom Sprint had reportedly been wooing, Sprint probably lacks the resources, customer base, and spectrum to make the inevitable move to LTE quickly and comprehensibly enough to be relevant and competitive in the upcoming large 4G procurements. The purchase price and terms (including a $3 billion penalty payment by AT&T to Deutsche Telekom if regulators don't approve the merger) are significant, and signal that a key part of AT&T’s agenda is to further undermine Sprint and hit it while it is already down. There is some value to AT&T of reducing its effective competition to one.
As far as AT&T’s customers are concerned, would the merger mean a quicker path to LTE? Probably not. Even if the large cash outlay AT&T will make for the acquisition does not reduce its network investment plans, AT&T will have its hands full integrating its HSPA+ network and ordering and billing platforms with T-Mobile's; it will be a Herculean feat simultaneously to migrate all those cell sites (over 60,000 of them) to LTE. Thus, the likely impact of this merger on 4G will be a delayed migration by AT&T to LTE while Verizon Wireless plunges ahead with its LTE deployment.
Ben Fox is a Managing Director of TechCaliber Consulting, LLC, a global technology and telecom consultancy that advises the world's largest companies on strategies for reducing their costs for telecom and technology products and services. Kevin DiLallo is a partner in Levine, Blaszak, Block & Boothby, LLP, the leading firm representing large users in the negotiation of network services and related agreements. Ben and Kevin can be reached at email@example.com and firstname.lastname@example.org, respectively.