They slapped you with usage caps and overage fees, tried charging you twice for the same phone and they won’t stop thieves from using your stolen phone, even though they could.
Ah, mobile carriers. They really hate us, don't they? Well, except for John Legere’s T-Mobile (TMUS), perhaps. At least Legere is cutting prices and slashing some of the industry’s worst practices.
But, wait, now comes news that Sprint (S), just acquired by SoftBank, wants to buy T-Mobile and consolidate the industry down to just three national players. It’s hard to think of a worse outcome for customers.
After Legere recharged T-Mobile, the hope was Softbank would follow suit and pump fresh capital into Sprint, ranked third in customers but probably fourth in relevance. But SoftBank’s billionaire CEO Masayoshi Son had to raise his bid to grab Sprint away from Dish Network, and bond raters cut his company’s bonds to junk levels. Now Son’s game plan may be premised on higher returns through reduced competition.
Bad news for customers
The big carriers have been pressing for more consolidation, or in business jargon, a “better industry structure.” But the phrase “is a polite way of saying that prices would be higher, subsidies lower and competition simply less intense,” writes industry analyst Craig Moffett in a report on the possible Sprint offer.
At first glance, it’s hard to see regulators approving this deal after blocking AT&T’s (T) 2011 bid to buy T-Mobile, especially since T-Mobile has gone on to drive consumer-friendly competition to a degree not previously seen. And even if the combined carrier wanted to maintain T-Mobile's pro-consumer push, integrating the companies' not-so-compatible networks would end up being a huge distraction.
Still, Son has gone up against telecomm regulators in Japan on multiple occasions and is said to already be assembling a top-notch lobbying team in Washington. The leaked story of the possible deal may be a trial balloon to see how regulators react.
In an early survey of former regulators, lobbyists and academics, industry analyst Moffett found a wider range of opinions than he expected. Half of the two dozen polled thought the deal had a solid chance of being approved.
That could be a disaster for customers. T-Mobile’s moves to cut prices, end two-year contracts and separate phone subsidies from service fees are just starting to make an impact with the bigger carriers.
Useless copycat plans
For example, over the summer, T-Mobile introduced plans to separate out phone subsidies and allow for more frequent upgrades. Verizon Wireless (VZ) and AT&T quickly followed suit but under AT&T’s frequent upgrading plan, customers didn’t actually save a dime. That’s just like AT&T and Verizon’s copycat family data plans that just bill more for more usage without offering volume discounts.
But after a couple of quarters of T-Mobile gaining more post-paid subscribers than the other major carriers combined, AT&T relented. Its newest plans offer lower monthly service fees for customers who bring their own device to the network or pay off a new phone in installments.
Legere says he has more plans to shake up the industry in 2014, though he’s not giving out details yet. Those annoying family data plans could be next in his sights.
And AT&T could certainly use more pressure. Just last week, CEO Randall Stephenson was whining about phone subsidies. Now that most customers are buying more-expensive smartphones, "you move into maintenance mode," Stephenson said at an investor conference in New York. "That means more device upgrades. And the model has to change. You can't afford to subsidize devices like that."
That logic, of course, ignores that, until just now, carriers such as AT&T weren't offering a true subsidy. AT&T didn't charge the full cost of a phone upfront, but it buried those charges in padded monthly fees that never went down even after a phone was paid off. It took T-Mobile to change that game.
To keep Legere on target, regulators such as Tom Wheeler, new chairman of the Federal Communications Commission, should quickly signal that Sprint’s deal is a non-starter.
Hopefully, this is one trial balloon that gets shot down quick.