Let me start off by separating my thoughts about AT&T (T) the company with my thoughts about the merger deal. AT&T is one of the best dividend stocks in the market, and has an absolutely fantastic yield. AT&T currently has a 6.1% yield and has done a great job of growing its mobile subscriber base over the past five years because of its exclusivity deal with Apple (AAPL) for the iPhone. Now that the iPhone is available on Verizon’s (VZ) network, AT&T is looking to increase its subscriber base to become the largest carrier in the nation. This would be a fantastic deal for AT&T -- but a terrible deal for consumers.
A Soon-To-Be Duopoly?
The cell phone industry is becoming an oligopoly. The industry is controlled by fewer and fewer players. If the deal passes, smart phone customers will only have three carriers to choose from for nationwide services: AT&T, Verizon, and Sprint (S) are the United States mobile telecommunications market. Sure, you have tiny players like Cricket, Boost, and Virgin Mobile (VM), but these companies have nowhere near the scope of coverages, plans, and phones as the largest carriers.
With just three large carriers in the industry, consumers will be left with little control over pricing for plans. What happens if the nation’s three largest carriers decide that monthly plans with data packages should cost $199/month or more? What is to stop them from charging $99/month for basic telephone services? When options are limited, companies have total control over pricing.
Less competition always means higher prices for consumers. When a company knows that your options are limited, it can jack up prices to astronomical levels because it knows that you have nowhere else to go. What is to stop Verizon from making a bid for Sprint and reducing the cell phone market to just two companies? Sprint would only cost $28 billion for Verizon to acquire. The company could then rival the size of the merged AT&T.
Here are a few reasons why I think that this is a bad deal for consumers.
- Higher prices. Less competition + trapped consumer = higher fees.
- Less phone choices. Customers will have to take the phone selections offered.
- Massive job losses Every merger has job losses as companies aim to eliminate redundancy.
- Higher fees. Fees always increase when mergers occur.
- More data cap plans. There is no need for any carrier to offer unlimited data plans anymore.
People tend to forget that AT&T had a monopoly once before. It dominated the landline telephone business. The Justice Department had to break the company up into several regional operating companies. The same thing appears to be taking place in the mobile telecommunications industry.
Two companies owning 80% of the market is a bad deal for customers. The AT&T / T-Mobile deal as currently configured should be stopped in its tracks before it ever gets started.