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There is no need to block an AT&T acquisition of T-Mobile

In the fast-paced, highly-competitive market of wireless phone and Internet access, this announcement stands out. The wireless carrier with the second-most subscribers, AT&T, is to acquire the number four carrier, T-Mobile USA. Some would say that this is a grave threat to competitiveness, risks reducing competition and increasing prices on everyone, and so should be stopped by the benevolent masters of the Obama administration. I disagree.

This is a young and vibrant market, with many competitors already out there, and more yet to come. The acquisition of a lagging company by the #2 company only puts pressure on the #1 firm, Verizon Wireless. Not only that, but existing regulations are plenty strong, and will almost surely result in resources being made available to lesser firms, reshaping the market without reducing choice.

Yes, it looks like T-Mobile USA was on the way down. While it was the number four wireless carrier in America last quarter, it was also the top carrier to lose subscribers in 2010Q4. Verizon added 1.1 million, AT&T gained 2.8 million, and Sprint gained 1.1 million as well, but T-Mobile lost 23,000 net subscribers. Even #5 MetroPCS grew much better, adding 290,000 of its own, and MetroPCS made less than a quarter of the revenue to begin with.

And it seems unlikely that T-Mobile was going to be able to catch up without a true 4G plan in the wings. T-Mobile’s ads can say all they want that HSPA+ is “4G”, but people have ways of noticing that T-Mobile’s “4G” just can’t compete with true 4G offerings like Verizon’s, Sprint/Clearwire’s, and even MetroPCS’s. Yes, the company you may never have heard of is gradually rolling out its own LTE service centered around larger metro areas, not surprising given the company’s name.

So of the top firms, #1, #3, #5, and #8 have 4G going today. #6 and #7 have announced definite plans to deploy 4G. Who’s that leave? #2 AT&T and #4 T-Mobile, the two companies who have been advertising the limited HSPA+ upgrade as 4G, even when it’s better described as an upgraded 3G. These are the two companies greatest at risk of falling behind technologically, while at the same time happening to use the same technology now (though at different frequencies; that’s the only thing that keeps an unlocked iPhone from running on T-Mobile at full 3G speed).

If we don’t let these two firms merge, then what we’d risk seeing over time is both of them falling off. Better to let the two of them combine resources to compete better with Verizon and Sprint/Clearwire (yes, the #3 and #8 firms share the same WiMax 4G network), than to risk losing both. Sure, it seems unlikely looking at the numbers that AT&T would collapse, but consider factors like AT&T losing iPhone exclusivity, and the influx of true 4G phones hitting Verizon and Sprint, and that could change quickly.

One would think that a big company like AT&T would be able to deploy 4G service. The company has previously talked about going 4G with LTE, and seems likely to do so in the future, but at this time there is nothing happening. Instead, AT&T seems content to upgrade its backhaul (the key Internet connections made to every wireless tower, which dictate how well it can serve its customers, and which got overloaded in the early days of the iPhone), waiting until it’s ready before offering true 4G. One imagines that adding T-Mobile’s resources could only help with that plan.

It’s also been a huge point of contention between Verizon and AT&T that Verizon’s “map of coverage” is larger according to some metrics. If AT&T gets a rapid expansion into areas that T-Mobile covers that AT&T does not, then suddenly the race between the top two becomes that much closer, that much more competitive, and therefore that much better for customers.

And besides, there’s a lot more to the world of wireless carriers than the big guys we see on television. The country is loaded with regional carriers that serve many people just fine. They get a phone, often free, and they can do what they want: make calls, send texts, get on Facebook and Twitter. It would be a mistake to declare the market non-competitive just because those of us with more specialized needs (national coverage, high-speed data) lose T-Mobile as an option, “only” being left with Verizon, AT&T, Sprint, MetroPCS, US Cellular, Clearwire, probably more I’m not thinking of, and any other firms that enter the market later such as LightSquared.

Some monopoly situation there, eh? Let the merger happen. Let AT&T sell off redundant spectrum of T-Mobile’s that it no longer needs, let AT&T sell off redundant towers in areas that AT&T already covers well, two things the government can already demand AT&T do without blocking the deal, and the market will have a sudden opening for someone else to join in or even expand. In the end, life goes on and we’ll still see fierce competition in this market.

Oh, were you worried about data caps? Then stop digging a hole of regulation and order the FCC to take its hands off of wireless ISPs, silly!

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