ATandT Buyout Is Best Option for T-Mobile Customers in a Stagnant Market

By Wayne Rash  |  Posted 2011-03-21

ATandT Buyout Is Best Option for T-Mobile Customers in a Stagnant Market

The first reaction I had on hearing about the agreement by AT&T to buy T-Mobile USA from Deutsche Telekom was one of dismay. As a T-Mobile customer, I'd grown used to its relatively low rates, its stellar customer service and the lack of dropped calls.

I also liked the comparatively low rates when I traveled out of the United States-T-Mobile charges about half of what AT&T charges per minute for calls made in Europe. Finally, I liked T-Mobile's willingness to let me unlock my phone so I could use foreign SIM cards.

But taking the long view, this was all going to change anyway. T-Mobile was adrift in a sea of sharks. While it made great strides in bringing Android phones to the market, it was ultimately Verizon Wireless that made the Android market explode with its Droid line of phones. T-Mobile dropped its Sidekick devices following a number of high-profile data losses. They're only now coming back in an improved form.

The company is best known for its customer service, which features real people with actual training (imagine that!) who can answer most questions without escalation. But as good as the customer service might be, it doesn't make up for vast areas of no coverage. On a recent drive through central Virginia, I found myself driving for more than an hour with no cell phone coverage. I was glad that I'm a ham radio operator and could still call for help in an emergency.

Ultimately, it was T-Mobile's inability to compete in a growing market that doomed the company to a merger with another carrier. For quite a while the effort was to merge with Sprint, a company that's suffering from being relatively small in a battle with giants. Had T-Mobile and Sprint reached an agreement on corporate valuation, there would have been the problem of how to merge the two networks. Sprint, which once owned what eventually became T-Mobile, has a CDMA network. T-Mobile is GSM. One or the other would have had to change. As was demonstrated during the last time Sprint revamped its network, this could have been a nightmare.

At least with an AT&T merger, customers from both companies can use the other's voice and EDGE network with nothing more than a setting change at their cell sites. In some markets, AT&T and T-Mobile already have roaming agreements. Their respective 3G frequencies are different, but the merger gives T-Mobile customers access to 3G and 4G LTE (long-term evolution) that would not have been available previously.

T-Mobile Customers Will Lose Some Advantages

But this is not a win-win for everyone. T-Mobile customers will almost certainly lose those low prices they've come to enjoy. However, the successful prepaid business that T-Mobile built over the last few years will probably continue. It's unclear what will happen to T-Mobile's international roaming prices and the company's willingness to unlock a phone after 90 days into a contract. These were great features for travelers, but not something that most users care about, and I don't expect to see them continue.

Perhaps the worst news for customers is that AT&T, which has repeatedly been rated as having the lowest quality in customer service, is taking over the company with the best. While it's unlikely that T-Mobile's customer service culture will survive, perhaps AT&T will decide to clean up its act. Hey, it could happen.

But T-Mobile and its customers have other things to worry about. During the course of the approval process, T-Mobile won't be able to make any spectrum deals, including the one it has been talking to Clearwire about. It's unlikely that the company will be able to introduce any new phones that aren't already in the pipeline. T-Mobile will enter a state of suspended animation while U.S. antitrust regulators consider the situation. This could take a long time.

If the merger fails, T-Mobile will get something for its trouble. A couple billion dollars and a better roaming agreement with AT&T seem to be the top items. If the merger succeeds, T-Mobile customers will get vastly greater coverage, access to the iPhone and higher prices. AT&T customers will see better coverage, and given T-Mobile's apparent ability to operate a reliable network, perhaps fewer dropped calls.

In the longer term, competition will suffer. While T-Mobile may not be the biggest carrier around, it is the only real competitor in the GSM world that AT&T has in the United States. Competition will also suffer on a broader scale, since there will be two huge companies, and one-Sprint Nextel-that's not so huge.

It's unclear how long Sprint can last under this situation, especially given its somewhat shaky finances. Also suffering are all those thousands of former AT&T customers who got tired of the poor customer service, high prices and draconian policies and fled to T-Mobile, in some cases bringing their iPhones with them. To them this must seem like the nightmare that will never end.

Rocket Fuel