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The Issue Nobody's Talking About in the AT&T/T-Mobile Debate

By Jeff Kagan
Jun 2, 2011 5:00 AM PT

The latest news on the AT&T/T-Mobile merger comes from California. State regulators said last Thursday they would launch an investigation into the proposed merger. This is yet another worrisome problem for AT&T to deal with in what is turning out to be a very squeaky deal.

The Issue Nobody's Talking About in the AT&T/T-Mobile Debate

This merger proposal did not start out to be controversial, but that's what it is rapidly turning into. The wireless industry has been weighing in, and the negatives are piling up. I will discuss the problem and a workable solution.

Then in my Pick of the Week, I want to tell you about IBM using their supercomputer Watson to improve healthcare.

Enemies Lining Up

This is turning into a real uphill battle for AT&T. There are valid concerns being raised -- concerns that AT&T has not been able to answer.

Last week, Leap Wireless was one of the latest companies to take a side. It's against the merger. It says it would leave the U.S. market with just two wireless giants, and that would harm competition. A familiar argument.

Two weeks ago MetroPCS also weighed in. It too is against the merger. It said the deal would overly concentrate spectrum holdings with one company, AT&T.

Sprint was the first company to take an anti-merger position. It's articulated strong opposition to the merger, saying it would be bad for the competitive market and for Sprint as a company. Sprint says there are many negative implications for pricing, choice and innovation.

One by one, opponents are registering their complaints. It looks like the only one this deal is good for is AT&T as competitors and suppliers weigh in.

The Bucket Approach

Years ago, spectrum sales by the U.S. government sounded like a great idea. Not so much anymore. In the last few years, wireless data usage has exploded thanks to smartphones. In this world, this original solution no longer works.

One solution would be putting the spectrum together in one large bucket, and letting every new phone access it no matter the carrier. That would give every carrier, every phone and every customer identical access and opportunity. If one is full here, then the phone will simply switch to another.

That makes sense once we realize the marketplace is much healthier with multiple strong competitors. That would improve the connection for every customer. That would strengthen competition as well. And isn't that what we really want?

This may sound outrageous to some, but we cannot continue down this same path. The road will get rockier as wireless data demand increases.

Like with other mergers, this deal with AT&T and T-Mobile is not all good or all bad. Depending on your position, there are good and bad parts to this.

The good part is it will help AT&T Mobility, which has been choking with limited spectrum. It will give them extra capacity. That will make AT&T and their customers and investors happy.

However, everyone else says they will be hurt by this deal. It continues down the broken path. Mergers are OK when there are countless small competitors, but we have been merging for years, and today there are very few and very large competitors.

A Shortage of Spectrum

In deciding to approve or not we have to think of the benefits and the problems to the marketplace, not just for AT&T and T-Mobile.

It is important to be aware of the good and bad things that will happen to the industry, to other competitors, customers and investors. This deal changes everything.

I have to ask this question: Will we be happy with the end result?

AT&T says it is confident that it will win approval, but as more anti-merger activity builds, one has to wonder if it will be blocked, or at least challenged and changed. It is becoming clear it will not be approved as-is.

AT&T hopes they will get what they need -- spectrum. That will help them, but what will it mean for the rest of the marketplace? And what does it mean for the future?

While debating this issue, no one is discussing the elephant in the room. Spectrum shortage continues to spread. The problem continues to grow over time.

Who has the crystal ball? The problem is trying to see the future. We cannot tell what the industry will look like just a few years down the road. It changes rapidly and often. This always happens.

What I am saying is that it is impossible to see what the future looks like. What will the industry look like in another five years? We don't yet know, but we can all agree it will look completely different than it does today.

Unforeseen Consequences

As you can see, the industry changes faster than any regulator can deal with. The clocks they work on run at different speeds. Private industry clocks runs much faster than government regulators' clocks.

Yet we expect regulators to see into the future and make the best deal for the consumer and the marketplace as well as the competitors and investors. It's an impossible task.

That is the world we are dealing with. We have seen so many mergers and acquisitions over the last decade. There are fewer and larger competitors today. Each past merger was managed as best we could. Yet the marketplace continued to rapidly change.

The same thing will happen here. We should not expect the regulators will know what the marketplace will look like in a few years. No one does. Much depends on the moves we make today, mergers and the new technology that is introduced.

So what's the answer? Good question. There are many solutions, but there is no clear answer. However, this spectrum shortage will continue, even if this merger is approved.

Regulators will try to address the problem areas. They will successfully address some, but not others. Then the new problems we cannot even see today will start to appear over the next few years. That always happens.

If this merger is approved, it will change the industry dynamics, and that will usher in another wave of change that we cannot fathom today. Sprint may be acquired by someone else, or visa-versa.

We can expect another wave of smaller mergers trying to fill the number three slot better than Sprint could alone.

What the Industry Needs

AT&T needs the spectrum, not the deal. All the competitors who have voiced their opinions have been against it. Now California, a very influential and powerful player, has also raised concerns.

AT&T is not concerned with the health of the entire marketplace. Nor should they be. That's our job. It's up to us to look at the entire industry and guide it in the right direction.

I can't believe I am saying this. I have been a free market hawk for many years. However, as the number of wireless competitors continue to shrink, we have to be much more careful going forward.

We have a growing capacity problem. So rather than just discussing AT&T's needs, we also should be talking about the growing industry needs. After all, it's not all about AT&T. It's about the entire industry. That means nearly 300 million customers, millions of workers from the entire industry, and investors in this wide assortment of companies.

If we solve the capacity shortage, AT&T's need for this merger goes away.

This proposed merger is just a short-term bandage, and just for AT&T. What about the rest of the industry that will suffer with the same problems going forward if we keep ignoring the elephant in the room?

What we need is to pull back the camera and come up with a real industry-wide fix.
Jeff Kagan's Pick of the Week

In my Pick of the Week, I want to tell you about IBM using its supercomputer Watson to improve healthcare. You remember the IBM Watson don't you? It became a TV star by winning on "Jeopardy." Today IBM is using this supercomputer to improve healthcare. That's right.

Imagine going to your doctor and watching as he or she uses Watson to search databanks, diagnose anything and prescribe the best treatment for you -- even with all your existing conditions that make your treatment different and often more difficult than that of your neighbor.

Today doctors say they spend at least five hours a month reading medical journals to stay updated. Watson can reduce or even eliminate that need. Remember when we used to type a page on a typewriter or take hours or days researching something that now takes seconds using search engines? Things change. Things improve.

IBM's Watson is already digesting medical textbooks and information. It is a big challenge for doctors to stay up to date. This is what the computer was made for.

HealthTech! Healthcare and IBM sound wonderful together, don't they?


Jeff Kagan is an E-Commerce Times columnist and tech analyst following wireless, telecom, healthcare and technology. He is also an author, speaker and consultant. Email him at jeff@jeffKAGAN.com. Read the first chapters of his new book Life After Stroke, now available at Amazon.com and Barnes & Noble.


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