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Delving into wireless deal

Merger may boost US broadband role, limit choice

(Digital Illustration/ Anthony Schultz)
By Hiawatha Bray
Globe Staff / March 22, 2011

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While AT&T Inc. yesterday said its proposed acquisition of cellular carrier T-Mobile USA is vital to America’s leadership in wireless broadband services, consumer advocates worried that the deal could be bad news for the average cellphone user.

“It’s most likely going to mean higher prices and less competition,’’ said Edgar Dworsky, a former Massachusetts assistant attorney general who now runs consumerworld.org, a consumer education website. “I would rather see T-Mobile remain independent.’’

On Sunday, AT&T said it had struck a deal to purchase T-Mobile USA from its German parent, Deutsche Telekom, for $39 billion in cash and AT&T stock. The transaction would make AT&T by far the biggest US wireless carrier, with 130 million customers, or 40 percent of the total market. The number two carrier, Verizon Wireless, has about 94 million customers, or 31 percent of the US market.

In Boston, Verizon Wireless dominates the market, and would retain its lead even if AT&T and T-Mobile come together. Between 2009 and 2010, Verizon served 48 percent of wireless customers, according to data from Scarborough Research, a New York market-tracking firm. AT&T was in second place with 22 percent, while T-Mobile had 11 percent of the market; combined, they’d still serve just 33 percent of Boston’s wireless users.

Verizon Wireless declined to comment yesterday on the proposed acquisition. But the nation’s number three wireless carrier, Sprint Nextel Corp., issued a statement yesterday urging the Department of Justice and the Federal Communications Commission to cast a skeptical eye on the deal.

“The DOJ and the FCC must decide if this transaction is in the best interest of consumers and the US economy overall, and determine if innovation and robust competition would be impacted adversely by this dramatic change in the structure of the industry,’’ Sprint’s statement said.

During a teleconference yesterday morning, AT&T chief executive Randall Stephenson depicted the T-Mobile acquisition as a benefit to his company’s shareholders but also as vital to the future well-being of the United States.

“Above all else this transaction represents a major investment and a major commitment by a US company to advance America’s leadership in global broadband,’’ Stephenson said, adding that the United States is number one worldwide in wireless broadband subscribers, smartphone sales, and downloads of software apps for mobile devices such as smartphones and tablets.

AT&T’s merger with T-Mobile would extend this dominance by allowing AT&T to more efficiently deploy LTE, or Long-Term Evolution, an advanced broadband service that delivers much higher speeds than standard wireless data networks. AT&T had already committed to deploying LTE technology in its network beginning this year.

But Stephenson said that gaining control of T-Mobile’s wireless network will allow his company to offer LTE service to 95 percent of the US population, more than AT&T could reach on its own. Verizon Wireless and a much smaller carrier, MetroPCS Communications Inc., have already deployed LTE services in a number of cities, including Boston. He said that AT&T has already invested $75 billion in cellular network upgrades over the past four years.

Still, the company can’t shake a longstanding reputation for poor service quality: A survey of cellphone users published in December by the magazine Consumer Reports ranked AT&T last among major US carriers.

“It’s the least satisfying major cellphone company in America,’’ said the magazine’s electronics editor, Paul Reynolds.

But AT&T said the T-Mobile acquisition could change all that, by giving the company thousands of additional cell sites. John Stankey, president of AT&T Business Solutions, said this would result in better coverage, especially in densely populated urban areas.

“Customers will see a difference,’’ said Stankey. “Their experience will improve.’’

Reynolds of Consumer Reports is skeptical about the merger. He noted that T-Mobile has targeted lower-income customers with a variety of inexpensive plans. “T-Mobile has been a price leader,’’ Reynolds said. “We may lose that role for them in the marketplace.’’

In addition, the end of T-Mobile would leave the number three carrier, Sprint Nextel Corp., a distant runner-up. Sprint serves 50 million people nationwide; second-place Verizon Wireless has nearly twice as many customers. And Sprint is remarkably weak in the Boston market. According to the Scarborough Research survey, Sprint served just 7 percent of the market as of last year. By contrast, the low-cost cell company Tracfone, which sells prepaid phones in convenience stores, did almost as well in Boston, at 6 percent.

Reynolds worries that Sprint may not be able to survive as an independent company, and may be forced to seek a merger partner. This could further reduce competition in the wireless industry. But Mark Beccue, senior analyst at ABI Research Inc. in Oyster Bay, N.Y., said that if AT&T abandons T-Mobile’s low-price strategy, Sprint is well-positioned to benefit.

Sprint is a major provider of prepaid cellular services, which let users buy a cheap phone and a package of calling minutes, instead of signing a two-year contract at a fixed monthly price. The company already owns Boost Mobile, a major seller of low-cost prepaid phone services, and it provides the wireless network used by another popular prepaid brand, Virgin Mobile.

Beccue said that the AT&T deal could cause many of today’s T-Mobile customers to embrace prepaid services. “They’re going to look for a cheaper price,’’ said Beccue. “I believe it’s going to be Sprint.’’

Some customers who remain with T-Mobile will have to obtain new phones as part of the deal. The radio frequencies that T-Mobile now uses to deliver its 4G wireless data services will be taken over for use by AT&T’s new LTE data network, which is incompatible with T-Mobile’s current 4G phones. AT&T said it will gradually migrate T-Mobile customers to the new network, but didn’t provide details on how the transition will be handled.

Hiawatha Bray can be reached at bray@globe.com.