Friday, February 28, 2014

After AT&T Merger Was Blocked, T-Mobile Becomes Aggressive Innovator

In 2011, AT&T's attempted merger with T-Mobile would have created a mobile phone giant in the US.  The merger would have given AT&T an almost monopoly in the cellular business, and the Federal Communications Commission saw that as a reason to block the acquisition.  When T-Mobile was set free from its powerful suitor, the smaller carrier began to behave like a real competitor. It has spent the last three years shaking up the industry with its aggressive innovations in mobile pricing.

Now the tail has begun to wag the dog, and the attractive pricing breaks that T-Mobile has offered are being countered by the bigger carriers.  Lucrative schemes like contract phone pricing (where you earn a cheap or free upgraded phone every two years but must lock in a two-year contract at a high price) are getting challenged by no-contract options at AT&T and Verizon, as well as T-Mobile.

Hunter Communicatons Original News Source:
The New York Times

Link to article:

Excerpt: "In 2011, officials at the Federal Communications Commission and the Justice Department moved to block AT&T’s proposed $39 billion acquisition of T-Mobile. That kept the struggling, fourth-place carrier alive as an independent firm. And it led John J. Legere, T-Mobile’s flamboyant, foul-mouthed chief executive, to brand his company the 'uncarrier,' and inaugurate a string of measures that have turned every accepted practice in the mobile business on its head.

T-Mobile’s resurgence, and the effect it has had on the larger market for cellular service, may hold important lessons for regulators who will soon sit in judgment over the latest enormous broadband proposal, Comcast’s deal to gobble up Time Warner Cable.

While T-Mobile executives are reluctant to credit the failed merger with AT&T as the source of the firm’s aggressive new pricing strategy, they admit that they see themselves as disrupters in the market. 'We want to identify every pain point for consumers in this industry and eliminate them all,' said Michael Katz, T-Mobile’s vice president of marketing.

In the last year, T-Mobile has dropped the traditional two-year contract from its lineup; now its plans come without customer lock-in. It has also dropped early termination fees, overage charges and other extra strings that carriers apply to keep you in line. The carrier now allows customers to text and use the Web while traveling in 100 countries at no extra charge. T-Mobile has also offered to pay off the early-termination fees its new customers might incur with their old carriers when switching. Most important, it has unbundled the price of a phone from the price of wireless service. Now, you can pay a separate amount for each piece. This means that if you decide against immediately upgrading when you finish paying off your phone, your monthly bill might — astonishingly — go down.

Former F.C.C. officials say this is exactly what the agency hoped for when, in 2011, it weighed in against AT&T’s plan to purchase T-Mobile. As the agency’s staff explained in a lengthy report, regulators feared that shrinking the four major carriers to three would give providers an incentive to raise prices. Instead, regulators saw an elegant escape hatch for T-Mobile. If AT&T was forced to call off the deal, it would owe T-Mobile a breakup fee worth at least $3 billion in cash, plus an additional $1 billion in rights to wireless spectrum. The money and spectrum would allow T-Mobile to build out its network infrastructure, making it more attractive to new users. Given the right leadership, regulators hoped the fourth-place carrier could play a spoiler’s role in the marketplace. By aggressively courting new users, T-Mobile would act as an agitator prompting change across the industry."

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