Yesterday, T-Mobile’s corporate parent, Deutsche Telekom, revealed a plan to merge T-Mobile USA with MetroPCS. The still-tentative deal may seem like an insignificant bit of consolidation among minnows struggling to compete against bigger rivals AT&T, Verizon, and Sprint, but it’s significant for a handful of reasons:
- Consumer data costs: T-Mobile and MetroPCS influence the low-price and pre-paid end of the market, which exerts price pressure on bigger carriers’ more premium data plans. Consumer data costs may jump if the low end consolidates. Data rationing may increase.
- Spectrum crunch: Consolidation leaves fewer voices at the table on regulatory issues like allocation of wireless spectrum. There may be less pressure on the giants to leave spectrum free for new carriers and add-on mobile services that could bring innovations to market.
- Net neutrality: AT&T, for one, has sought to limit data-hungry apps like Apple’s FaceTime video chat. Net neutrality advocates say carriers shouldn’t discriminate against apps or usage. Consolidation would make it simpler for carriers to organise against net neutrality.
That said, it’s important not to paint the big carriers as the bad guys in the mobile ecosystem. There’s a good case to be made that consolidation and scale are needed to finance state-of-the-art wireless services. Larger companies can handle larger capital outlays, and without significant investment, infrastructure won’t be ready for consumers’ emerging data demands. These include the increasing popularity of mobile video (which is like a giant straw for data).
However, it is also important not to forget (as Tim Wu points out in his useful history of information empires, “The Master Switch”), that Verizon and AT&T emerged from the old Bell telephone monopoly. Big is better only to an extent. The largest carriers have a tendency to act like utilities and may grow complacent or anti-competitive. Consolidation is removing players at the low end of the market where disruptive innovation classically happens. (See chart above: With the merger, the top four carriers would be larger than the next seven combined.) Eventually, the big carriers will be tempted to squelch innovation if they perceive it as a threat to their dominance. In part, worries over anti-competitive behaviour were what prompted regulators to shoot down the proposed AT&T and T-Mobile USA merger.
The rest of the mobile ecosystem would be well advised to keep tabs on how the carrier market consolidates.
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