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Overseas Talk
 

“If you Twist my Arm for a Bet, I would say The Deal goes”
AT&T’s Acquisition of T-Mobile makes The Former AMERICA’S largest Telecom Operator. Regulatory Approvals are still Pending; but if This Deal sees The light of The Day, INDUSTRY Dynamics will change forever. In an Exclusive Conversation with B&E, Sergio Meza, Assistant Professor of Marketing, Rotman School of Management, University of Toronto, expounds upon The Possibilities.
Issue Date - 12/05/2011
 
B&E: What are the synergies that AT&T will derive from the T-mobile acquisition? What are its implications for consumers?
Sergio Meza (SM): The most obvious one is that AT&T increases its consumer base. Synergies in the operations of the two businesses, particularly in areas of sales and consumers service, may also seem easy to achieve. Some of these operations may be consolidated; therefore, less employees and offices may get work. Given that the networks in general are very complex and sophisticated, it is not obvious what synergies may be easily achieved there. However, larger market coverage seems one of them. And in the long run a more efficient use of the spectrum and network could eventually be achieved. The acquisition does not have direct implications for consumers. Some consumers may gain access to more services, and a far more expansive network (particularly T-mobile subscribers). However, consumers in general will lose one option to choose from in the market, and in the long run may suffer the potential consequences of a less competitive market with higher prices and poorer services.

B&E: What are your views about the pending regulatory approvals with respect to this deal? It does not really create a monopoly if one considers the entire mobile and telecom universe but it nevertheless does create a monopoly of sorts in the GSM segment.
SM: An important issue here is how the market, where these firms compete, is defined. I don’t think that the GSM segment defines the market by itself, as it is just the technology used. Even though GSM technology is advanced and allows far more sophisticated applications, this is not very obvious from the consumers perspective. For the most commonly used services (voice and text), carriers using other technologies provide equivalent provisions. In US, prior to this acquisition there were four major players in the wireless market – Verizon, AT&T, Sprint and T-Mobile. This acquisition does increase market concentration, which is one of the factors that regulators are looking at. But other factors such as the conditions of the economic recovery, which may grant more concessions to corporations and the technological benefits that more consumers get. It is not clear what will the regulators decide. However, if you twist my arm for a bet, I would say “the deal goes”.

B&E: Historically, when measured in terms of the consumer price index, call rates have actually decreased after the merger or acquisition of two telecom entities. However in this case, there is a clash of interests as T-mobile offers significantly lower call rates when compared to AT&T. Will this eventually lead to an increase in prices?
SM: In our industry, prices have been decreasing and several factors have contributed to that. Advances in technology that have allowed more efficient networks, economies of scales as service providers add more subscribers per region, and fierce competition telecom operators. With the acquisition, more efficient usage of the spectrum and network can be achieved. Are these efficiencies going to be passed to consumers? I don’t see how this is going to happen, as the pressure from competition is going to decrease. On the other hand, I don’t expect that prices for current users of T-mobile will increase in the short run, as this may backfire on AT&T. In the long run prices of the wireless services are going to decrease. But, compared to what they would get if the firms were kept separated, I think consumers will end up with higher prices.

 
B&E: The merger will lead to a situation where only one company would be offering GSM services. Eventually, customers would find no value in having an unlocked phone. What does such a situation mean for the US telecom industry and customers as a whole?
SM: Without knowing how long they are planning to keep separate brands, I think the major impact reflects in the permanence that consumers would have fewer options to switch (with consequences in prices and services). Now, the fact that the value of an unlocked phone would disappear seems a marginal consideration for consumers churn or switching.

B&E: What will be the impact of this merger on telecom suppliers and manufacturers?
SM: Even though some particular firms might end up as winners because they’ll get business from a larger costumer, others would lose out as limited competition would be in a better position to bargain. Suppliers overall would will find themselves in a weaker situation. A sole firm has a much larger bargaining power than two competing firms. The new consolidated company will obviously get better deals. But given that the competition intensity will decrease, better deals won’t necessarily go to the consumers.

B&E: Will this deal inflate the value of other operators around the world? If so, will we be seeing more such acquisitions in other countries as well?
SM: Other countries may have different market conditions, different competitors and different regulators. Evidently, the eyes of telecom analysts and regulators will follow closely what happens in the US. But, I don’t see a major influence in the short run.

Amir Moin           

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