Market More Competitive if AT&T Gets T-Mobile USA?

Most people looking at the proposed AT&T purchase of T-Mobile USA might conclude that the deal would reduce competition in the U.S. mobile market. Others might argue it would be more efficient, if not more competitive.

Some people might argue that the apparent failure of the bid is "a potential missed opportunity for consumers to benefit from more carrier competition." Precisely why that might be the case is not explained. Even without AT&T-Mo, we still have no competition

One argument about the "limited state of competition" in the U.S. mobile market is that the existence of incompatible air interface standards (CDMA and GSM) means consumers cannot move their devices freely among the leading carriers, thus limited competition. That argument is fine, as far as it goes. In that vein, one might also note that the carriers do not all use the same spectrum bands, either.

But that problem is going away, since all the U.S. mobile providers have settled on Long Term Evolution. Whether we will see a dramatically different competitive environment, just because all users have LTE handsets, remains to be seen, when LTE is firmly established.

One countervailing argument to the "handset freedom" argument is complicated, but might explain why "competition" will not be dramatically different once all carriers have moved to a single air interface standard. Consumers could buy unlocked handsets and then use several carriers, even now, with the market using different air interfaces. But few consumers choose to pay full price for handsets, especially as we now are moving to a smart phone market where the full retail price of a new device can be $500.

Most consumers simply choose to limit their freedom by signing service contracts that reduce the cost of new handsets to no more than $200. After two years, they typically want to replace those older models with the latest new models in any case, so they once again have to decide whether paying full retail or exchanging a contract for a subsidized phone makes more sense.

To the extent that competition is limited, it is voluntary. Consumers would rather get the cheaper devices, even if the price is a service contract.

That is not to say there are no competitive issues, or potential competitive issues, in any part of the U.S. communications business. But device portability and air interfaces do not seem to be the biggest issues.