What AT&T and T-Mobile Merger Means for Innovation

In a few minutes, I’m going to get on a Virgin America flight to New York, beginning a week-long stay in the city that was home to me for more than a decade. As I head east, I wonder about the implications of the big merger announced Sunday: AT&T buying T-Mobile USA for $39 billion, of which $25 billion was in cash.

You can read Stacey Higginbotham’s breakdown of the news, along with my analysis of the winner and losers. I was hard-pressed to think if there were any winners in this deal apart from AT&T and T-Mobile’s parent company, Deutsche Telekom.

The Federal Communications Commission must have given an informal blessing to this deal. There is a better than good chance that AT&T will make some nominal concessions in order to get the final approval from the FCC and the Department of Justice. In fact, AT&T executives have been rumored to be boasting about the nod-and-wink arrangement with FCC. It’s a shame!

The impact of this deal getting approval will, more likely than not, have a huge impact on wireless prices. Why? Because on a national level, we now have two near-monopolies in control of our wireless destiny. Verizon and AT&T control roughly 70 percent of the total 296.3 million mobile phone subscribers in the U.S.

According to comScore, Verizon has about 31.3 percent of the total market, and after this deal; AT&T will have 38.8 percent. That is 70 percent of the U.S. market. The third largest player is Sprint, with 11.9 percent of the total market. (Sprint Prepaid also has 4.2 percent of the total subscribers.)

“It is not uncommon but that’s what the regulators need to grapple with,” says Chetan Sharma, an independent wireless analyst, who shared with me his research showing that most mature markets have two to three major players.

While that’s true, in those markets, the telecom regulators tend to have more teeth and tend to have a pro-consumer bent. More importantly, the competitors in many mature markets tend to work on a single wireless technology standard.

Out here in the U.S., we have two distinct standards: GSM (AT&T & T-Mobile) and CDMA (Verizon and Sprint.) The network technologies are supposed to come to come together with Long Term Evolution (LTE) technology, but it’s still going to be awhile before LTE networks become pervasive. What happens in the interim?

Two years ago, when T-Mobile launched its own app store, in jest, I mused out loud that this might be the return of the carrier deck. One of the things I suggested in my post Sunday was that we shouldn’t be surprised if AT&T tries to push Google around over Android OS and pushes its own app store in favor of the app marketplace, and makes people go through its own payment system.

Many industry sources believe Ma Bell isn’t going to muck with the app store, but instead, will be messing around with the price it charges for data. Because we have a near-duopoly in the market place, it’s pretty likely both wireless companies will look to maximize profits on their networks, and as a result, push the prices higher and offer lower data caps.

What that means is that as an app developer, you would have to develop apps for a metered world, where data is expensive for consumers. In other words, the freewheeling culture of downloading apps that helps spawn the new mobile Internet revolution would come to an end. Bluntly put, AT&T is carbon monoxide for this blossoming ecosystem.

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