AT&T, T-Mobile, And American Cars

As a CEO, you want low prices and innovative products from your suppliers. You will get neither in the network business if AT&T buys T-Mobile. That deal will trigger the inevitable merger of Verizon and Sprint -- limiting your choices and slowing the development of new offerings.

We've seen this movie before. The US car industry devolved into a few players, and decades of decline were the result. A few years ago in a post, I asked the question: "Why can't America build a great car?" Bob Lutz, a 40-year car executive, answers the question in his vinegar-soaked book (which I recommend).

I'll take license and distill his answer: The American car industry faded because of poor leadership and management. Lutz blames the failure on a culture of over-planning and bureaucracy.  Spreadsheets were valued over common sense, customers were ignored, and too many over-educated over-analyzers focused on arcane process and rules rather than the job at hand: building great cars that people want to drive. It's not the unions' fault, it's not bad workers, it's not government regulation, it's not healthcare costs. It's leadership.

Which brings me back to the network business. When markets are reduced to a few players (as was the US car business), you run the risk of under-diversifying management thinking. In nature, a lack of diversity increases the risk that a species will be wiped out by a single infectious disease -- as almost happened when the group think pathogen ravaged Detroit. 

The antidote is competition -- multiple players from varying backgrounds with a wide range of solutions and unique approaches to innovation. That is why the US needs more, not fewer, network providers -- and cannot afford the risks inherent in duopoly.

If anybody out there wants to make the argument for duopoly in networks, I'd love to get your views.


What about airlines?

Think we should be blocking all those airline mergers? The number of choices on a given route is dropping (and the service sucks) -- on the other hand, there are an amazing number of innovators shaking things up (JetBlue, Virgin America, Porter, RyanAir).

Small is beautiful!

Thanks George, great post!

It mirrors much of what I wrote a few week ago as a problem with general business mindset.

All the best, Max

As a veteran of the wireless

As a veteran of the wireless telecom industry, i can assure you the the merger has already hit us relatively hard... its not the merger per se, its the BIG GOVERNMENT involvement with the merger. AT&T wants to make a buyout... its a free market, let at&t make the buyout... the FTC is involved and brought ALL AT&T construction to a screeching halt. i know more people at my level of the game that are out of work right now and being laid off because at&t us not building hardly ANYTHING right now because of the FTC holding patern... that being said, spring and VZW will never merge... sprint wont sell to verizon, and verizon wont sell to sprint... the bouncing ball that sprint has always followed would never work on verizon, which is, offer a cash infusion, get them in debt, withdraw the cash backing, let the company be bought fall flat on their face and have to file bankruptcy, then buy the company for pennies on the dollar... it happened with nextel and its now happening with ClearWire... I was on both projects when they happened... Verizon has too much money and doesnt need sprints money, Sprint will not sell... they just wont... period... there are also alot of value carriers uprising... Cricket wireless, MetroPCS, Pocket Wireless, and others... they will always be the driver of innovative plans and tech for the big carriers... when straight talk came out with there all you can stand for $45 plan, all the big carriers dropped their prices... that happened last year... i feel that there is alot of fear here that is not based in anything REALLY solid... I dont mean to call you out or anything, just giving my humble opinion about something ive been watching, interacting with and working with for almost 17 years...


Our government and therefore our commercial reality is pretty much ruled by the all mighty dollar. However; it is done so in the wrong way, it is not the consumers dollar who makes the choice, it is the dollar given to the politician or group member in Washington DC by the lobbying group hired by the corporation to get there bill passed.

This merger is a prime example pf this for many reason's. The first is it is unneeded by At&t for all reasons except to wipe out competition in the particular communication space which is GSM cellular bandwidth.

The reason given for this by At&t is this bandwidth, but they already have it by 200% capacity wise at least. This is known as well as shown in the leaked documents authored by At&t themselves. We are still talking about this though as if it will happen. So the only thing to be realized by this is just as I say in other posts, which is that our governments realistic impact is nonexistent by there own choice, and this just like almost anything else done by our government passes or fails by one thing, which is exactly how much the companies are willing to pay the politicians to pass it.

This in all reality is disgusting and entirely against both the constitution and thereby the definition of our country. Of course it is argued as if it is existing because of our true commercial economy. That true commercial economy in the US died I would say late 60's early 70's mainly before I existed on this planet when corporations fully took over the US!

I appreciate Mr. Colony's

I appreciate Mr. Colony's observation on how leadership may have led to the American auto industry's near collapse, but there is no comparison bewteen the auto industry and the broadband industry. I say broadband because, quite frankly, it's more than just plain old telephone and wireless service anymore.

When I began my analyst career over twenty years ago, the long distance market was opening up. Cable participation in local exchange telecommunications was pre-infancy. "Broadband" was limited to ISDN. Deregulation, innovatitive technology, and convergence led to the broadband market that we have today.

These companies do not want to go back to the near stagnant days of the early 1980s. The industry's leaders didn't want stagnation then, and the current leadership does not want it now. If the analysis of opponents to the merger is correct, there is a lot of profit to entice new entrants to develop disruptive technologies and grab the lower-tiered market that will eventually be abandoned by T-Mobile USA, one way or the other.

A car is a car. You can't say that about broadband and the inovative ways to access it.

viable competition

If you want innovation you have to have viable competition, and viability is the key. In an industry where distribution is limited by a finite and extremely expensive asset (wireless frequency spectrum) large players can use their deep pockets to exclude smaller rivals by rufusing access to spectrum or pricing smaller rivals out of the market. The only reason they have not done this is because of the government or fear of the government forces them into roaming agreements. If the market consolidates to two big players, then the only way to foster competition is through regulation. Do you really want to entrust the wellspring of innovation to beaurocrats? Far better to prevent any further big mergers in the U.S. wireless carrier market and let viable competition drive innovation.

Lower priced innovation

Forrester labels itself a Market Research company. Market research is loosely defined as: any organized effort to gather information about markets or customers. George, I'm not really seeing your efforts to gather information. AT&T labs has been innovating since 1901. They currently apply for an average of 2 patents a day. They have over 120 approved patents this year alone. All of these can be found on AT&T Labs public website. I tried doing a little information gathering for you and had the website in this post, but apparently your spam filter didn't like that. Sorry, you're going to have to look it up yourself. It is rather preposterous to assume that once AT&T acquires T-Mobile that they would just shutter the labs. I've never met our CEO, Randall Stephenson, but I can tell you this about him: he wants lower prices and innovative products as well as wanting AT&T to be a leader in the industry(did you not do your research on him either?). I'm pretty sure he isn't out to make AT&T a monopoly again or, even worse, change the corporate logo back to the Death Star. This is an interesting concept considering that in order to innovate, especially in a technology based field, you need to have a healthy bottom line to fund your research. This is something that AT&T has. They even reach out to all of their employees, using social media, to leverage their collective knowledge every day in order to innovate and lower their cost of doing business. This, in turn, will translate into lower prices and innovative products for their customers. I'm pretty sure that's what you were wanting.

Not quite a Duopoly

AT&T and Verizon both locked in to Apple with the iPhone. This was a big score for Verizon as AT&T had the monopoly on the iPhone. The thing I believe you are leaving out is the third party, which is Apple.

While AT&T and Verizon have the majority of cell phone users with a very few going to TMobile and other plans, they are not the ones driving the airwaves. What is driving the airwaves is the cell phone makers. Apple is constantly making newer and better things. The iPhone and the iPad are just the tip of the iceberg. Now, other companies are duplicating the work with the Tablet.

Therefore, it is a tad simplistic to say the cell phone industry is a duopoly. Technically, they are but they are not the ones driving us to the future of cell phones.

Ask Steve Jobs this question...

"Hey Steve, when you were negotiating to get the iPhone into the market, would you want to be working with two cell phone companies or four?" The presence of T-Mobile kept AT&T honest when it was cutting the deal with Apple -- the company knew that Jobs could always walk around the corner to another GSM player -- and that he was just iconoclastic enough to do that... So if you think that the cell providers are not governing the future of cell phones, I've got a nice bridge to sell you between Manhattan and Brooklyn...

who controls

It is a tribute to Apple that we are even discussing who is the boss. Network operators were the gate keepers of technology and decided what could reach the customers. Apple changed the terms of the game, they were able to wrest key design decisions away from the MNO.

I agree with Mr. Colony that having a T-Mobile option (assuming Apple wanted its first phone on just one technology -- and thus chose the majority GSM, and thus Verizon/Sprint were not options) helped in negotiating terms that left design decisions to Apple.