AT&T, T-Mobile Deal: What Could It Mean for Consumers?

March 21, 2011— -- The mega merger between telecom giant AT&T and its smaller rival T-Mobile may mean big bucks for corporate America, but what about cell-phone-carrying Americans -- and, more importantly, their wallets?

AT&T announced Sunday that it would buy T-Mobile USA from Deutsche Telekom AG in $39 billion deal that would make it the biggest cellphone company in the country. The news appeared to satisfy Wall Street, which saw stocks rally Monday morning.

Assuming the deal receives regulatory approval (which is not necessarily a foregone conclusion), AT&T said it would be able to bring a high-speed 4G connection to 95 percent of the U.S. population.

But analysts say that though the merger would expand nationwide 3G and 4G network coverage for cellphone users in the U.S., the reduced competition would mean fewer phone options and pricing plans over all.

While the two companies will have to work out some technical differences in their telecom marriage, analysts said that the combination of the two networks would likely provide a strong nationwide network.

"Merging the two networks means that you're going to have a nationwide 3G and 4G network that's really able to serve almost all Americans," said Sascha Segan, lead analyst for mobile at PCMag.com. Rural T-Mobile residents could benefit from AT&T's network, and city-dwellers (yes, even those with iPhones) could get a boost from T-Mobile, he said.

But in a blog post written today, Consumer Reports' Paul Reynolds said the two carriers' data networks are "literally on different wavelengths, which might pose compatibility problems." The smartphones for the different carriers run on different parts of the wireless spectrum, he pointed out.

An AT&T-T-Mobile deal also likely means the end of T-Mobile's lower prices and friendly service, analysts said.

In an ideal world, a merger combines the best of both companies, but Segan said, "Usually what happens is the larger carrier eats the smaller carrier."

Consumer Groups Urge Regulators to Scrutinize Deal

While rates for AT&T customers may not go up, T-Mobile customers will either have to get used to paying more or look for service elsewhere, among smaller carriers like Metro PCS and Cricket, he said.

"The rates will probably normalize up to what AT&T's are now," Segan said.

The merger could also mean fewer phone options and, ultimately, less innovation. To save money, he said, it's likely that AT&T and T-Mobile will consolidate their phone options for consumers.

With fewer phones on the market, customers might find that it's harder to find discounts and rebates.

"Whenever there's less competition, there's less of an incentive to offer deals," Segan said.

But he and others emphasize that it will take a couple of years before these changes become reality for consumers.

AT&T said it will take about a year to close the deal, and then it could take another year to combine their systems.

"If there's any consensus yet, it's that the decision won't come quickly and, if it's an approval, it will likely come with conditions," said Consumer Reports' Reynolds said. "For one, the FCC, among the key regulatory bodies that will assess the deal, has already expressed concern about the state of the wireless market, opting last year to declare it not competitive."

The Consumers Union, the nonprofit publisher of Consumer Reports magazine, said it is pushing federal regulators to look at the merger proposal carefully.

"AT&T is already a giant in the wireless marketplace, where customers routinely complain about hidden charges and other anti-consumer practices," Parul P. Desai, policy counsel for Consumers Union, said in a statement. "From a consumer's perspective, it's difficult to come up with any justification or benefits from letting AT&T swallow up one of its few major competitors. We plan to work very closely with regulators and lawmakers to carefully scrutinize this deal and what it would mean to people's pocketbooks."

AT&T-T-Mobile Merger

If you want a quick snapshot of the major issues the proposed AT&T-T-Mobile deal poses for consumers, take a look at Consumer Reports' five key questions below:

Will service be more like T-Mobile's or AT&T's? Consumer Reports' best guess is that AT&T's service will win out, which is a loss for consumers. "Neither carrier is among the very best in satisfaction in our latest Ratings of cell-phone carriers, based on a survey of readers' experiences and available to subscribers," Reynolds wrote in the blog post today. "But those survey results found AT&T to be the clear worst wireless carrier in the country, with below average scores in almost every attribute."

Will T-Mobile customers see rate hikes? Most analysts think the answer is "yes." T-Mobile charges less than most competitors, and Consumer Reports says it's possible that after the merger these cheaper plans will continue only as long as it's contractually obliged to provide them.

Can Sprint survive? According to Consumer Reports, The AT&T-T-Mobile deal would make Sprint a distant third behind the other giants, which has led some analysts to speculate that Sprint might also seek a merger partner remain a viable competitor.

Will network coverage improve? Some analysts say that by combining networks, the deal expands coverage areas for customers. But Reynolds points out that the two companies' smartphones run on different wavelengths -- "T-Mobile's 3G and 4G phones use the 1.7/2.1-GHz bands, while AT&T's 3G/4G phones operate in the 850/1900-MHz bands."

Will the deal be approved by regulators? The consensus, so far, according to Consumer Reports, is that the decision will take a while and, if the FCC approves the match, it will be conditional. "For one, the FCC, among the key regulatory bodies that will assess the deal, has already expressed concern about the state of the wireless market, opting last year to declare it not competitive," Reynolds said.