AT&T recently announced its intention to acquire T-Mobile for $39 billion, but the deal faces some problems. It may not be legal because of antitrust regulations, and it could spell disaster for local economies.
This deal is sweet for AT&T. The bigger the company can get without “the man” holding it back, the better. In economics, it’s called economies of scale, but it might as well be called economies of cash.
Think about it like this: If AT&T and T-Mobile merge, they won’t really need two local stores to service customers. They can gain more customers for less cash per person. It could save the new company $3 billion in cold, hard cash every year, according to the New York Times.
These savings happen for two primary reasons. First, sharing resources like supply chains, management and warehouses saves cash. It’s the reason why we carpool. Second, they don’t have to compete for customers — they already have them.
Tobacco companies experienced a similar problem. Before there were limits on advertising to small children by using “cool” cartoon camels, tobacco companies spent insane amounts of cash on advertising. Why? As one company advertised more and stole customers, everyone else had to do the same or go out of business as all their customers left.
That’s right. Tobacco companies benefited, at least for a short time, from advertising regulations.
By absorbing the competition, AT&T would control a huge portion of the lucrative cellphone market. The potential merger would make the new, super AT&T the largest cellular provider in the U.S., with around 129.2 million customers. In comparison, Verizon and Sprint Nextel Corporation have 101.1 and 49.9 million each, respectively.
But it’s not all rainbows and butterflies here. If the companies merge, there’s far less incentive for the competition, and it may lead to much higher prices for subscribers.
As online exchange LendingTree explains so well, “When banks compete, you win.”
When cellphone companies don’t have to compete, we lose.
On top of that, the new goliath AT&T and Verizon would control some 80 percent of the lucrative cellphone market. When there are so few competitors, prices tend to fall slowly, if at all. Sprint Nextel, with only a 12 percent market share, will likely do little to help.
While it’s likely T-Mobile’s customers will be safe for now, their prices may increase substantially after their contracts end.
Apparently, many regulators are optimistic about the possibility of the two giants merging. While the cellphone market is dominated by a small number of large companies, there are tons of small, rather unsuccessful small competitors at the local level.
It’s not uncommon to have five or six carrier options at the local level, which may be enough to allow the merger to go through.
According to AT&T’s CEO, Randall L. Stephenson, this is how the Department of Justice should and will evaluate the merger. He maintains the merger will provide better coverage for customers of both companies, allow AT&T to keep up with America’s insatiable appetite for data. Like a politician — get this — Stephenson maintains the merger would expand critical infrastructure needed for our nation’s future.
Yeah, I bet he’s really concerned about our nation’s future.
If AT&T is allowed to merge with Deutsche Telecom’s T-Mobile, we must then figure out how to keep competition in the industry without unfairly attacking the company. Would we force AT&T to allow contracts with smaller cellular providers to maintain a national presence, or place shortage-inducing price ceilings on cell phone bills?
For now, we can’t even say for certain the merger will go through. If it does, I’d be willing to bet it will be a much better deal for AT&T than for Americans.
Devin Graham is a 21-year-old business management senior from Prairieville. Follow him on Twitter @TDR_dgraham.
 
 
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Contact Devin Graham at [email protected]