Worth keeping an eye on as the developing world engages with market-exit policy

Posted on March 21, 2011  /  0 Comments

My response to incessant complaints in the region about profits disappearing and investment drying up because of excessive licensing has been to say that liberal and transparent market entry policies must be accompanied by clearly stated exit policies that are consistently enforced. I have also pointed out that in many South Asian markets the levels of competition, as measured by the HHI, are relatively higher than in the US and that what applies in S Asian markets does not necessarily apply in N American markets and vice versa. In this light, it is worth tracking what happens to the AT&T acquisition of T Mobile.

AT&T customers, though, could benefit in one notable area: service. Both AT&T and T-Mobile operate on the same technology, known as GSM, so the combination should provide better coverage. That has been a sore point for AT&T, which has been ridiculed over dropped calls and slow data services, especially on the Apple iPhone.

“The carriers’ network technology fits nicely together so AT&T could redeploy some of T-Mobile’s spectrum in short order, helping relieve some of the pressures on its network,” said Craig Moffett, an analyst with Sanford C. Bernstein.

The acquisition would give AT&T additional leverage against its main rival, Verizon. The newly combined company, bringing together AT&T’s 95.5 million wireless subscribers with T-Mobile’s 33.7 million customers, would account for roughly 42 percent of all wireless subscribers in the United States. Verizon has around 31 percent, said Charles Golvin, a telecommunications analyst at Forrester Research. T-Mobile customers would have the option to buy an iPhone, helping AT&T combat the migration of the popular device to Verizon.

The deal would also provide significant cost savings, roughly $3 billion a year for the new company. Those savings, however, could have a huge effect on both the local and national economy, from real estate to media. The combined company is expected to close hundreds of retail outlets in areas where they overlap, as well as eliminate overlapping back office, technical and call center staff. It may also drastically reduce advertising spending. Last year, AT&T and T-Mobile spent a combined $2.7 billion on advertising, according to Kantar Media.

“From AT&T’s perspective, this is a huge win,” said Chetan Sharma, an independent wireless analyst. “It’s about being No. 1 and having economy of scale.”

Scale will be critical as AT&T continues its aggressive rollout of the next generation wireless network, known as 4G. The carrier has been slower than rivals to deploy the 4G technology, LTE, than competitors. T-Mobile does not have a 4G technology in place.

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