AT&T and T-Mobile USA: the case for a merger

randallCEO.jpg AT&T Inc. CEO Randall Stephenson announces his company's proposal to buy T-Mobile from Deutsche Telekom in New York. REUTERS/Brendan McDermid
I spent a fair bit of time last week combing over AT&T's first T-Mobile merger filing, a 381-page document that lays out exactly why the carrier thinks the $39 billion merger will be good for consumers, competition, and America. It's an interesting document: AT&T claims that the merger won't have any real impact on the wireless market because it already faces serious competition from every carrier except T-Mobile, which it repeatedly characterizes as a doomed company. After all, if T-Mobile is already failing, allowing AT&T to swallow it whole won't change the overall level of competition in the market. It's audacious, to say the least. Now, most people -- including me -- think this argument is preposterous. There are only four national carriers in this country, and approved or not, the end result of the T-Mobile merger process will have a significant effect on the wireless market. The only people who think otherwise all apparently work at AT&T, and a growing chorus of critics say the merger should be blocked on the grounds that it will reduce competition and result in a AT&T / Verizon duopoly ruling the market. My friend Chris Ziegler lays the anti-merger argument out in detail, and it's convincing, to say the least. Regardless, I still think the merger should be approved. Yes, I really do. Why? Because the current state of the US wireless market sucks. It sucks hard. AT&T is straight-up lying when it says that there's "fierce" and "intense" competition in the wireless market. There's not -- and the carriers do everything they can to keep it that way, while insisting that the smartphone device explosion is evidence of competition at the service level. It's a shell game that's actively hindered the development of mobile technology and services, and the FCC and DOJ have the opportunity to blow it up by attaching significant conditions to merger approval.
And man, does the wireless industry ever need some big-time blowing up. AT&T points to the explosion of Android and the iPhone as evidence that the wireless industry is competitive, but I see that only as evidence that Google and Apple are big enough to be competitive regardless of the knee-deep carrier bullshit they're forced to wade through en route to the consumer. It's a market failure that I can't buy an unlocked iPhone or Android device and easily run it on the carrier of my choice, and it's an even bigger failure that I can't use a phone number on multiple devices as easily as an email address or Twitter account or Rdio subscription. It's ridiculous that I can bring my own phone to AT&T's network but still have to pay same rates as someone on a two-year contract designed to subsidize a device. I can keep going -- and I'm sure you can too. It's insane. Mobile is exploding in spite of the carriers, not because of them. Let's fix it. So, what am I proposing? Two very simple rules: • First, that the FCC impose the same open-access requirement on the newly merged AT&T as were imposed on Verizon's 700MHz spectrum purchase. That means AT&T would have to allow any device and any application to use its network, just as Verizon has to with its LTE network. You might recognize this riff -- it's a little something called net neutrality. • Second, that the FCC require AT&T's 700MHz LTE devices to be interoperable with Verizon's 700MHz LTE devices. This would allow a consumer to take their phone and switch carriers just by swapping a SIM card. There are technological hurdles to making this happen, but it's key -- allowing consumers to easily jump ship will force the carriers to actually compete for their dollars. Now, there are a million other conditions that the FCC and DOJ might impose on the merger, all mostly to do with divesting spectrum resources in particular areas. But I think these two conditions would finally -- finally! -- begin to separate access from devices, a conflation that's done nothing but hold the entire tech industry back. I'd love to see what Motorola or Sony or Samsung could do with the opportunity to sell phones directly to the consumer, and I'm dying to see how AT&T and Verizon would differentiate their services once they can't rely on device exclusives. Faster, more reliable service at lower prices seems like a hell of a good start. What's more, I'd love to see the FCC really hold AT&T's feet to the fire when it comes to rural broadband. AT&T is promising that the merger will allow it to cover 97 percent of Americans with LTE, and FCC should set an aggressive timeline for that goal. Not only will that push other competitors to beat AT&T to the punch in underserved areas, but it will offer a real solution to the millions of Americans who still have to rely on dialup to get online. That's a crying shame -- we're rapidly getting to the point where broadband access is a necessary utility on the order of water and power, and we shouldn't let huge swaths of the country lag behind. We've seen what device manufacturers and software developers are capable of when faced with stiff competition, but we've never made our wireless carriers actually go head-to-head. Now's the time -- I just hope the FCC sees this opportunity to implement real open access rules and accelerate rural broadband deployment as clearly as I do. P.S. -- I mentioned it above, but you should definitely read Chris Ziegler's very convincing piece arguing against the AT&T / T-Mobile merger as well. There's a lot at stake here, and understanding both sides of the debate is critically important for anyone who cares about technology.