July 09, 2011 (Original publish date) • By Dennis Beaver
Last week, we began our look into the $39 billion proposed purchase by AT&T of T-Mobile Cellular. If approved by the Federal Communications Commission, it will impact everyone who uses a cell phone in the United States. We’ll explain how in a moment, but first, a question:
How would you like a calling plan providing unlimited free calling from your cell phone to over 100 countries, 140 TV channels in HD, and really fast home Internet – 20 megabytes – all for about $60 a month? To get it, you’ll have to move to Europe. In Hong Kong, it will cost you less than $40.
The average cell phone bill in the US is around $50. For the same level of service in Europe and most other countries, you will pay less than a third of that and be on a GSM network, the world’s standard. The US and Canada have the highest rates for both cellular and Internet and yet have, in general, inferior service.
According to our sources – both industry and at the governmental level – the blame goes in part to what was even then seen “as an incredibly stupid decision” by our very own Federal Communications Commission. In 1982, instead of adopting GSM, which was used by most other countries, the FCC allowed cellular companies to develop their own different standards, creating a cell phone Tower of Babel. There are now seven such standards in the U.S.
“The idea was to encourage competition,” a federal government employee told me on condition of anonymity. “This resulted in enormous expense, with each cell company building its own network instead of one nationwide radio standard which would have permitted sharing of resources. Most of the world uses GSM, but only AT&T and T-Mobile do here. You can still have lots of competition using one standard as they do in Europe. We got it very wrong,” she said.
The need for bandwidth
“Customers want all the great things possible with cell phones and wireless devices, requiring radio spectrum and a large subscriber base to make technology upgrades profitable,” observes Ken Grunski, president of Boston-Based Telestial, Inc. His company provides cell phones and sim cards which enable very inexpensive calling when traveling overseas, avoiding the hefty dollars-per-minute charges of U.S.-based cell companies when their phones are used abroad.
“If you are AT&T and buy T-Mobile, you get rid of a competitor, become the largest cellular provider in America, push Verizon into second place, and cause great worries for Sprint and other carriers. It will mean less choice for the consumer and legitimate concerns about customer service, as well as higher rates likely for T-Mobile customers,” he believes.
Earlier mergers resulted in lower rates
It is important to ask if mergers always result in higher prices to the consumer and less choice? AT&T spokesman Lane Kasselman points out just the opposite: “Since 2000, there have been five major cellular mergers. Today’s AT&T, Sprint and Verizon are the results of mergers with other companies, and in all cases, prices charged the consumer actually fell, while service improved.”
However, Sprint spokesman Tom Johnson cautions: “If the merger goes through, 80 percent of the cellular industry will be controlled by two companies, AT&T and Verizon. This will stifle competition everywhere else. Both Sprint and T-Mobile are the most innovative, introducing new phones, and Sprint was the first to roll out 4G.”
“But that’s what business is all about,” Telestial’s Grunski observes. “T-Mobile and Sprint have helped keep prices for everyone low through pricing leverage – attracting customers by offering lower prices. The entire merger is being looked at closely by the FCC to determine if it is in the public’s best interest. Both AT&T and T-Mobile have the burden to prove that it is,” he underscores.
Fasten your seatbelt: faster speeds are on the way
Grunski provided the greatest assurance that the competition can still survive in cellular and that we are all going to benefit from greatly improved technology, “because providers know what the consumer wants and will charge appropriately.”
“If the deal goes through, I would not be surprised to see Verizon buying Sprint, as they both have similar technology,” Grunski said. “This would strengthen competition in the industry, with benefits for the consumer. At present, there are a lot of smoke and mirrors and too much propaganda. Networks are getting better and faster. We are going to see faster download speeds on our handsets.
“Also, people who use large amounts of data are going to pay for it, regardless. But if you just talk on the phone, this merger going through or not simply won’t matter to you.”
But, as with all mergers, it will matter to the employees of AT&T and T-Mobile.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.