Good news bad news for consumers as AT&T bids to buy T-mobile

AT&T logo

AT&T has offered $39 billion for T-Mobile -- if regulators agree. Image: Flickr / mrvjtod / CC-BY-SA

In a deal valued at $39 billion, AT&T has made a bid to buy T-mobile. This deal must be approved by the Department of Justice and Federal Communication Commission, which may prove a challenge. If approved, this deal would prove to be both good and bad news for most consumers.

The basics of the AT&T / T-mobile merger

T-Mobile is currently the fourth largest wireless provider in the United States. Owned by Deutsche Telekom AG, T-mobile was entertaining offers from both AT&T and Sprint-Nextel. AT&T has offered $39 billion in cash and stock to purchase and merge with T-mobile. Combined, the two cell phone companies would have about 130 million customers, more than Verizon Wireless. Before the merger can go through, it must be approved by the Department of Justice and FCC. The DOJ must certify that the new business is not a monopoly. The FCC must certify that the AT&T / T-mobile merger would not violate communications law. These regulatory approvals could take a year or more.

Why the AT&T merger is good for your wallet

If the AT&T / T-mobile merger is eventually approved, there are some definite upsides for customers. Regulatory agencies will likely require that the new, merged company provide extended service to underserved areas. The merger will also reduce the strain on the spectrum of available wireless networks. The merger would also expand the availability of high-speed wireless broadband. In short, the new company would be able to provide expanded service to wireless customers.

How the AT&T merger could hurt your wallet

The proposed merger is expected to increase income by $3 billion per year, most of which will come from the short term loans of customers. Combined, the new AT&T and Verizon would serve 75 percent of wireless customers in the United States. This duopoly would reduce the downward pressure on prices, increasing the price paid for wireless service. The combined company would likely follow AT&T’s lead in limiting wireless data and charging higher prices for overages.

The increasing cost of wireless service

Outside the proposed merger of AT&T and T-mobile, the cost of wireless service is likely to continue increasing. Cities, states, and municipalities often charge taxes over and above the federal tax on cell phone service. The combined tax rate on cell phone service often ends up being very near the tax on cigarettes and alcohol. Nationwide, the average tax is 16 percent. This tax is regressive — individuals with lower income end up paying a higher percentage of their income for the same service, at times with no credit check payday loans. Landline telephone service, on the other hand, averages a three to five percent tax.

Sources

Bloomberg
A Growing Burden: Taxes and Fees on Wireless Service (PDF)

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