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AT&T Buys T-Mobile: And Then There Were Three

If approved by regulators in the U.S., Germany and Europe, AT&T's acquisition of T-Mobile U.S. will create the largest mobile provider in the U.S., and the deal will provide the new carrier with sufficient scale to move to LTE post-haste. As many undoubtedly noticed, both GSM carriers had resisted this move, but Verizon Wireless' aggressive deployment of LTE radically and rapidly altered the competitive U.S. landscape. The prospective consolidation of this country’s two largest GSM providers does so once again.

With this news, the industry should pause and consider that the three remaining nationwide carriers control approximately 95% of the U.S. market, with the two top carriers' combined share well over 75% (some estimates place it very close to 80%). While we can expect innovation in some aspects (e.g., LTE deployment to some extent--I explain this later in this blog) from both giants, both consumer and business customers would be remiss to think it will be achieved without a price--we just haven’t seen how high the price will ultimately be, or what form(s) it may take (e.g., higher "costs" in customer support, apps, device refresh, etc.).

The prospect for a vibrant U.S. mobile competitive landscape left the station once AT&T acquired Cingular; the consolidation trend gathered steam with Verizon Wireless' acquisition of Alltel, and reached another milestone with yesterday’s announcement. Given the current mobile competitive environment, there are very few milestones ahead. Thus, the AT&T-T-Mobile announcement may ultimately result in a significant change to the regulatory environment, which would change the landscape for all mobile providers and customers. Possible upcoming changes could include:

1. AT&T's concession to one or more thorny issues in the FCC’s December 2010 Net Neutrality rules (FCC 10-201), which prohibits discrimination by mobile broadband access providers against some competitive services, including web access, voice, and video telephony services. However, in other aspects, mobile broadband providers may still favor their own offers (or those of partners) over other providers. These restrictions ultimately could inhibit the pace or breadth of mobile carriers' LTE construction plans, which will retard both 4G mobile data and voice applications (for an overview of UC and Voice over LTE, see Should AT&T concede any contested elements in the Net Neutrality rules, it could impact the entire industry. This is the reason I think U.S. LTE deployments may occur at a slower pace/smaller footprint than major carriers have announced.

2. Heighted interest in the use of white-space spectrum by smaller providers. The first local markets are just coming online (for instance, the Wilmington, North Carolina municipal network). However, readers will note that since this spectrum was allocated to local analog broadcasters, the white space market is truly a local market offer. In its current operating environment, it is not a uniform, nationwide network and thus not an appropriate choice for medium and large businesses seeking alternative providers with large service footprints.

3. Potentially, even the re-alignment of U.S. mobile spectrum and providers into wholesale and retail operations. Some countries already regulate telecommunications in this manner, so it's not unthinkable that with the industry consolidation we've seen, the U.S. could follow suit.

AT&T's announcement influences far more than the U.S. market, because two international rivals, Vodafone (which has a 45% stake in Verizon Wireless) and Deutsche Telekom AG (which owns T-Mobile U.S. and will own 8% of AT&T), will each possess a vested interest in U.S. LTE deployments, offers, operations, migration, and customer support that can be applied directly to their home markets (and other major international markets in which each operates), giving both of these mobile operators potentially considerable advantage in learned experience compared to other rivals. This, of course, is of great interest to multinational business customers.