Tuesday, March 22, 2011

AT&T buying T-mobile is a bad idea.

There are currently 4 large wireless providers.  AT&T has agreed to purchase T-Mobile for 39 Billion.  You've no doubt read about this in many other places. 

There is a good breakdown of the pros and cons of the merger from Tim Karr

Here's a few thoughts I have about it.
1. The merger is guaranteed to cost people jobs.  Practically all T-Mobile stores and kiosks will be put out of business, in favor of already existing AT&T stores and kiosks.  Many of the admin and support staff that perform the same function at the two companies will end up being cut from T-Mobile, because there is already someone to do that at AT&T. 

2. AT&T worked real hard to brag about how 95% of the country was already covered by their network when Verizon was pointing out that it has better coverage of 3G than AT&T.  T-Mobile will not increase the amount of coverage that AT&T has.

3. T-Mobile uses a different technology than AT&T, so the fact that more towers will be in the same area will not increase the bandwidth available for AT&T customers.

What I believe this actually comes down to is that AT&T is buying the customers that T-Mobile has.  When there is enough competition in the market this is not an issue, because the customer that didn't want service with AT&T in the first place and went to a competitor can just leave AT&T and do it again.   This time however I'm not sure they will be able to.   T-Mobile has historically been the cheapest wireless provider which has drawn in many price conscious consumers.   Now those same people will be tied to AT&T with the cheapest option off the table when looking to leave.  They will be forced to pay more.

I'm sure I'm not the only one asking this, but are those customers worth $39 Billion?  Is that a good price to pay for that many wireless customers?   I expect a percentage to leave, my guess is that between 25% and 50% of them will leave as soon as their contract is up.  Anyone whose contract runs out between now and the merger may already jump ship and choose a different provider.  

Would the $39 Billion be better spent upgrading the 4G network?  Isn't that enough money to cover the entire country in 4G?  Doesn't the 4G network stem the tide of customers already leaving and open the doors to new customers looking for faster service?   Maybe I'm wrong. I don't know what's going on behind closed doors, I don't know for sure what happens in those meetings.  An invest and be the best strategy is a slow way to get customers.  However, it pays to be the leader, to be the best.  Those are the things that keep customers longer.   Retention is cheaper than earning new customers, and I have a feeling that AT&T is going to lose in the retention battle.   It may jump out in front with a big purchase of customers, but it will also have $39 billion less to invest in improvements, which just means that they will leave.   

Verizon, I think you've got it right.  Continue to invest in improving your network and stay better on price than AT&T, many of these customers will be yours, and when they are, they will stick around.