Update: This story has been updated to include additional comment from both AT&T and Yankee Group
Yankee Group on Tuesday came out against the proposed merger of AT&T and T-Mobile USA. The company released a report that concludes the deal would have a negative impact on consumers.
After analyzing Yankee Group consumer data and using the U.S. Department of Justice’s (DOJ) market concentration metrics, Yankee Group contends the merger will increase market concentration, decrease competition and raise average mobile prices in the most heavily populated U.S. wireless markets.
Yankee Group urged the FCC to block the merger unless it plans to take a stronger regulatory stance.
“We believe this merger will reduce choice for consumers and, more importantly, leave little incentive for AT&T to offer competitive pricing for unbundled mobile services,” said Gigi Wang, Yankee Group’s chief research officer and co-author of the report, in a statement.
The report showed that the merger would give AT&T more than a 50 percent market share in five major markets — Dallas, Houston, Miami, San Francisco and St. Louis — and grow the number of highly concentrated top 27 cellular markets from 1 to 17, reducing network choices in those markets.
Specifically, the report found that Seattle and Houston would see mean increases of more than $5 per month, and Boston, Dallas, Los Angeles, Miami and New York would see increases of less than $5 per month.
Yankee Group recommends that the FCC “think creatively about divesture remedies” for the situation. One such solution, according to the report, would be for the DOJ and FCC to require the merged companies to cede a portion of their customers to a mobile virtual network operator (MVNO) operating on their network.
The report goes on to suggest that the DOJ and FCC should regulate the maximum rates carriers can charge for unbundled wireless services.
“We think that the FCC and DOJ now have to step up to the plate and regulate,” said Carl Howe, research director at Yankee Group and co-author of the report, in a statement. “Our research shows that the U.S. wireless market is maturing into a duopoly. While agencies were reluctant to regulate too strongly in years past because they didn’t want to upset a nascent marketplace, those days are now over; it’s now time to get back into the game.”
AT&T responded to the report, saying “the only thing the report got right was that the merger will result in better coverage and performance.
“Beyond this, the report ignores so many facts and is so analytically flawed that it cannot be taken seriously,” said Wayne Watts, Sr. executive vice president & general counsel, in a statement.
Watts adds that the report ignores real-world data analyzed by the U.S. Government and independent third-parties that contradicts Yankee Group’s speculation on prices. He also said the report “totally disregards AT&T’s commitment made before Congress and to the FCC in sworn declarations that T-Mobile customers will retain their current rate plans into the future.”
“Yankee Group grossly misapplies or disregards fundamental anti-trust principles and makes unsupportable price assertions based on what they ‘assumed,’ what they concede is ‘not completely accurate’ and what they admit is ‘not possible to know’,” Watts contends, calling it “historical fact” that telecom prices have fallen, often dramatically, after significant mergers.
In an interview, Howe said he’s glad to be a part of the dialogue, calling it necessary to the health of a merger this big.
“We believe this is one of the first independent studies done without using the interested parties,” Howe said of Yankee Group’s report. “We think it’s important to have some independent facts established in this discussion.”
Howe notes that the framework for Yankee Group’s findings is a well established one. “These are not things we made up, these are the criteria the Department of Justice uses to evaluate a merger. We’re just publishing the numbers we get when we apply those criteria,” he said.
On the issue of reduced costs as a result of the merger, Howe concedes that AT&T would see a significant reduction in costs but wonders whether those savings be relayed to the customer. Howe said AT&T’s analysis is based on a per-unit model, which doesn’t reflect the way that consumers actually pay for service anymore.
“Their analysis is based on what’s called a unit pricing model, so how much do you pay per minute of calling or per megabyte,” Howe explained. “That’s nice, but I’m guessing if you asked anybody how many minutes of calling they did last month, or how many megabytes, most people will have no clue. What they really look at is what they pay… we have yet to have anything established that [AT&T’s] lower cost translates to consumers paying less money,” he said.
There’s no disputing that Yankee Group is right about one thing: If the merger goes through, AT&T will be the only national facilities-based GSM carrier in the United States.
“The suggestion we had that they might create an MVNO is really to provide some choice,” Howe said. “Let’s say you have one of the 5 billion GSM phones in the world. You’ve moved to the United States and you don’t want to buy a phone. You just want to hook up and use it. After this merger, there will be exactly one carrier you can do that with, AT&T.”