As late as last week, I was on record that my expectations for the spring CTIA show were ‘modest,’ due to the low probability of any big industry announcements. Well, CTIA began today, but thanks to the announcement of AT&T’s $39 billion acquisition of T-Mobile from Deutsche Telekom it looks like I’ll be eating those words. The AT&T-T-Mobile deal was clearly the talk of Orlando today, with everyone asking, what does this deal mean for the industry, and for consumers?
Let’s tackle the industry piece first. AT&T has many things going for it, but smartly recognizes that some recent changes in the industry are going to present formidable challenges in the not-too-distant future. With the loss of iPhone exclusivity and the popularity of look-alike Android devices, AT&T will increasingly be forced to compete for subscribers on the basis of network performance and reliability, rather than device portfolio. If you’ve been paying attention to the popular press, you know this is a battle AT&T is not poised to win. So rather than slowly building more network capacity, AT&T is quickly acquiring existing network assets; rather than try to win new customers, AT&T is buying them. Fortunately for ATT the cost of capacity and customer acquisition keeps going down: Sprint paid $36 billion for 15 million Nextel subscribers (approximately $2,400 a subscriber) in 2005; Verizon paid $28 billion for 13 million Alltel subscribers (approximately $2,200 a subscriber) in 2008. If this deal is approved by federal regulators, AT&T will pay $39 billion for 34 million T-Mobile subscribers, or approximately $1,200 a subscriber, less than half what Sprint and VZW paid on a per-subscriber basis. Just as importantly, T-Mobile’s spectrum and tower assets are a near-perfect complement to AT&T’s own. And because both carriers share GSM technology, network integration should be fairly seamless.
Now let’s look at what this means for consumers. I tend to agree with most observers that, in the long run, increased market consolidation is bad for consumers. And it’s true that in time, AT&T + T-Mobile’s combined power will give them increased power over GSM device manufacturers, possibly leading to higher prices, or fewer choices. But in the next couple of years, the deal will be positive for AT&T and T-Mobile’s existing subscribers. AT&T subscribers should benefit from an improved network; as stated above, AT&T is acquiring complementary assets much more quickly than it could build those same assets on its own. And T-Mobile subscribers should benefit from increased device variety, especially top-of-the-line smartphones like the Apple iPhone or Motorola Atrix. According to Compete’s Q4 2010 Smartphone Intelligence survey, 8% of current T-Mobile feature-phone subscribers don’t have a smartphone because they are “waiting for my wireless service provider to offer a specific smartphone.” Thanks to AT&T’s $39 billion dollar gamble, T-Mobile subscribers won’t have to wait as long now.
P.S: Compete will be out in force at CTIA this week. Adam Guy moderated a panel Monday, and Danielle Nohe and I will be meeting with carriers, OEMs and application providers. If you’re in Orlando, say hi!
Chris Collins leads the Technology & Entertainment Practice for Millward Brown Digital. In this role, Chris provides data-driven insights and strategic guidance to leading retailers, telecommunications carriers, consumer electronics manufacturers, and their marketing partners. Prior to Compete, Chris was a senior member of the Consumer Wireless team at Yankee Group Research and worked as a management consultant for Monitor Group and IBM Business Services. Connect with Chris on LinkedIn.