Will four into three go ahead? Thoughts on the AT&T/T-Mobile deal

POSTED BY Global Administrator
Back in the day, when I was a callow youth, I cut my telecoms teeth in updating a database which detailed the activities of mobile network operators on a regional, national and indeed local basis: at the time, there was a far greater prevalence of smaller players, often proudly holding half a dozen licences with a combined population coverage of six humans and sixty thousand cattle. You may have noticed that times have changed. In December 1999, there were eight operators with a market share of 5% or greater  - for the record, they were AirTouch  with a 17% market share), SBC Wireless (13%), AT&T (11%),  Bell Atlantic (9%), GTE (8%), Sprint (7%), BellSouth (6%) and ALLTEL (6%): this in a total market of around 86 million users. There was then a general upheaval over the next year or so – AirTouch, Bell Atlantic and GTE combined to form Verizon, while SBC and BellSouth merged to become Cingular Wireless.  So then there were five. And that was pretty much how it remained for the next few years, although the nomenclature and structure of the five in question  would change somewhat, thanks to the entry into the market of T-Mobile: five latterly became four when Verizon Wireless acquired Alltel in 2008. And then there were three. Or, possibly. Earlier this week AT&T announced that it was seeking regulatory approval to acquire T-Mobile from Deutsche Telekom, in a cash and stock transaction valued at $39 billion. So what would this mean: well, firstly, for those of you around the globe whose task it is to update cellular KPIs, your job would get a little simpler, in that when we’d look at significant market share there’d just be AT&T (with 43% of the market once T-Mobile’s subscribers were factored in), Verizon (31%) and – some way off the pace – Sprint (17%). It would also mean that the two largest players between them controlled 74% of the market between them, when their wholesale subscribers are included (contrast 1999 when that figure was 30%). Now, a tri-cornered market is of course by no means unique: a three-player model has pre-dominated across various major markets for several years including France and China. But it is the scale of concentration within the top two players that might provide cause for concern: although it remains below that in France (where Orange and SFR account for around 77% of the market), it is higher than Spain (73%), Italy (70%), the UK (68%) or Germany (67%). Furthermore, in other markets where there are currently four major players, the prospect of further consolidation has made regulators uneasy: in its consultation documentation on the format of 4G auctions, published this week, UK regulator Ofcom was explicit in stressing that it wanted the auction structured in such a way that four players, not three, walked away with spectrum at the end of it. Hence  the rumours that the FCC – whose chairman Julius Genachowski was reportedly not informed of the planned merger in advance of the announcement – is eyeing it somewhat warily: an anonymous source was quoted by the Wall Street Journal as saying that “"There's no way the chairman's office rubber-stamps this transaction… It will be a steep climb to say the least." Meanwhile Sprint – which was itself interested in acquiring T-Mobile – seems likely to object to the merger being approved. The upshot would appear to be that, even if approval is given, it will be a long time coming, and it is distinctly possible that there will be a welter of conditions attached regarding divestiture of assets (including spectrum). In short, four will not become three for a while yet…