Bernstein Argues ATT-T-Mobile May Lead to Higher Prices, But Says That’s Not So Bad
Most of those opposing AT&T’s proposed $39 billion purchase of T-Mobile argue that it will hurt competition and lead to higher prices for consumers, while those favoring the deal maintain that there will still be sufficient competition if the transaction goes through.
Analysts at Bernstein Research are offering a different take. They argue that passage of the deal may well lead to less competition and higher prices. However, they say that’s not such a bad thing.
The firm notes that American wireless firms have lower profit margins than their European counterparts and that consumers here consume twice to three times as much data, but pay only half or a third as much per megabyte for that data.
“Given the economies of scale of wireless, the constraints of CEOs and historic decisions with regard to spectrum, only further consolidation of the U.S. market is likely to deliver better infrastructure and lower prices,” Bernstein said in a report. “In short, more wireless competition may (though there is no guarantee of this) deliver lower prices near term, but it will almost certainly deliver lower quality infrastructure.”
The surest path to higher quality, the firm reasons, is consolidation.
“If U.S. regulators want to redress the lamentably lousy wireless service Americans receive, one of two things must happen: U.S. operators must be able to reduce their cost to serve (probably through consolidation) or Americans must pay more per unit consumed,” Bernstein’s analysts say in the report. “If the ‘Just Say No crowd’ gets their way, they may well end up with cheaper telephony near term (although this is far from certain), but they will certainly receive a poorer wireless service.”
It’s an interesting argument, though probably not the one we will hear from AT&T as it lobbies for government approval of the deal. Both the Federal Communications Commission and Department of Justice have to sign off on the transaction, while several state attorneys general have said they are looking into the matter. Sprint has also vowed to fight the deal.
