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Merger or No Merger, Who Wins?

(Monica Alleven) Permanent link

The headline on Aperio CI’s press release yesterday pretty much sums it up: “Merger or No Merger: Verizon Will Win Big, Off-Brand Wireless Operators Will Win a Little. Sprint, AT&T & T-Mobile Are All At-Risk.”

The release refers to an online survey conducted March 28-29 that included 5,337 respondents across the United States. It was done by Aperio’s research affiliate, Left Right Research, which also conducts “The Stony Brook Poll” on how well Americans understand money and financial systems.

While these latest survey results are likely to trigger smiles at Verizon Wireless, it should be stated that Verizon is not a customer of Aperio’s data management services, nor are any of the other carriers mentioned in the report. Aperio CI CEO Duffy Mich might like to get any and all of them on board as customers, but for now, it seems as though his company is doing pretty well with the business it has in Europe and elsewhere around the world. Mich himself has been in the telecom business since 1977 and has been running Aperio for 20 years, and while speaking with him, it’s clear that he takes a lot of pride in how his surveys are conducted.

In this one about wireless services, researchers asked open-ended questions, namely: “What comes to mind when you hear the name (Sprint, AT&T, T-Mobile or Verizon)?” The results show that respondents’ answers were positive toward Verizon more than twice as much as they were negative. Sprint and AT&T both had negative responses that were more than double the positive ones, and T-Mobile’s positive responses were slightly greater than the negative ones.

Here are some of the bullet points from Aperio CI, with my commentary added in parentheses.

Verizon is the clear winner overall, with highest positive views and lowest negative views. (Not too surprisingly; plus, the survey was done after Verizon released the iPhone.)

T-Mobile is perceived as the lowest cost provider by a strong plurality of respondents. (Again, not surprising since that’s been its reputation for many years.)

AT&T wins the award for the high-cost provider, since it is perceived as the most expensive of the four major operators. (Huh? I think Verizon and AT&T are pretty neck and neck when it comes to costs.)

Verizon clearly wins the network quality award. (No shocker here.)

AT&T was winning the award for Best Phones until Verizon started to sell the iPhone. (OK)

Sprint doesn’t win any awards. (Uh-oh. Didn’t they just move up the rankings in the American Consumer Satisfaction Index (ASCI) released this week? Sprint tied with Verizon in customer satisfaction, so this seems a little harsh.)

Both the ACSI and Aperio surveys show troubling times for AT&T and T-Mobile. ACSI founder Claes Fornell has said it’s common to find a reduction in customer satisfaction after mergers, but it’s rare for customer satisfaction to drop ahead of a merger. AT&T and T-Mobile both showed a large deterioration in customer satisfaction and customer service in the ACSI scoring.

That would seem to point to good signs for Verizon. Earlier this week, Verizon Communications President and COO Lowell McAdam called the merger “inevitable,” which just corroborates earlier indications from the company that it isn’t going to raise a big fuss over it. There’s little incentive for Verizon to oppose it if it wants to add to its acquisition roster in the future.

Another reason for Verizon to root for the merger (besides it being a distraction for AT&T for a year or so): If AT&T and T-Mobile customers are unhappy now, they’re probably only going to get more cranky and likely to switch. If you’re an AT&T customer post-merger, you’re not too happy that T-Mobile customers get better pricing; as a T-Mobile customer who gets acquired by AT&T, you’re constantly worried about AT&T raising your rates. According to the survey, T-Mobile has the most volatile base, as 49 percent of T-Mobile customers said they were likely to churn over the next year.

So, wouldn’t that suggest that Sprint, while vehemently opposed to the merger, would be a winner as well? Not according to Aperio, whose survey also shows more than 25 percent of T-Mobile and Verizon customers have a negative view of Sprint. (Also, nearly 25 percent of T-Mobile customers have a negative view of AT&T.)

It should be noted that the “off brand” wireless providers that Aperio’s press release refers to are those who are not one of the Big 4, so you can put Cricket/Leap and MetroPCS and other brands in that category, which will probably gain a little whether the merger goes through or not.

Under the “no merger” scenario, it also would seem to me that T-Mobile would be a winner, at least in the short term. That $6 billion break-up fee is nothing to sneeze at. The break-up fee includes $3 billion in cash, about $2 billion worth of spectrum and a roaming agreement valued at around $1 billion, according to Reuters. How much that bundle would help T-Mobile in the longer run isn’t crystal clear. But by then, maybe Sprint would have a clearer path to LTE, and you could potentially make a case for a Sprint/T-Mobile tie-up – if you’re strictly figuring they bring their networks together for LTE. Even with that, it seems like a tough sell given their divergent base technologies and Sprint’s storied history with the Nextel network.

As for the survey that Left Right Research did in March, Mich notes that it was done after the merger was announced but before it was more widely discussed. Last week’s Senate hearing raised all kinds of questions (and not so many answers) about AT&T’s spectrum position, jobs, innovation, the state of competition and just in general, what the wireless landscape would look like if the deal goes through.

All of which is to say, it’s not nearly the slam dunk it might have appeared to be at first glance (OK, to me and maybe some lawyers who work for AT&T who must have been really, really confident). If the survey respondents saw any of that hearing, they may well have changed their minds about more than a few things. Then again, it may have just reinforced the negative vibes for unhappy customers.

Posted by Monica Alleven at 5/20/2011 6:02 PM

I thought the AT&T/T-Mobile merger was a slam dunk because Wall Street was going to con the politicians into believing it would actually result in more jobs. I applaud the politicians and bureaucrats for actually taking the time to do their jobs and think.

When was the last time a merger resulted in more jobs? What restructuring outfit is going to recommend keeping departments and craft positions that do exactly the same thing. At the end of the day, the business needs to make money and having duplicate organizations is costly and only hurts investors. I don't care what AT&T and its biased supporters say; mergers result in job loss in the first few years of the merged entity's existence.

Anyone remember what happened to AT&T when it absorbed McCaw and then it absorbed BellSouth Mobility and what happened when AT&T got absorbed by SBC and then SBC consolidated operatiosn across the company? By the way, it took AT&T over 2 years to properly absorb BellSouth Mobility. I forget how long it took AT&T and McCaw to actually merge and integrate their operations but it took a heck of a lot longer than Wall Street was willing to discuss.

I cannot recall the last telecom merger that actually resulted in significant job growth after the merger; usually the first few years result in massive job loss and then when the company eventually begins to stabilize then hiring begins; and that means you are looking at about 3 years before you see any significant hiring.
Posted by: PJ Louis at 5/21/2011 1:18 AM

AT&T, Claimed Spectrum Efficiencies is Hot Air . AT&T has the largest licensed spectrum holdings of any wireless carrier. AT&T’s alleged capacity constraints are contradicted by the facts. Benefits of the transaction are Illusory. AT&T claims of a “spectrum crunch” and only the acquisition of T-Mobile’s spectrum and infrastructure assets can solve it. The fact of the matter is Verizon Wireless (VZW) has less spectrum licenses then AT&T has. VZW has 1,526- Mobile/Fixed Broadband licenses and AT&T has 2,526- Mobile/Fixed Broadband licenses.1 VZW has well over 90 million customers and it's network is superior to AT&T network. AT&T should be asking at it's own Radio Frequency engineers what steps it needs to take in order to beef up it's network without having to spend $40 plus billion to buy out its only GSM competitor for spectrum.2 Maybe it is as simple as spending more money on the network it already has. AT&T has lagged significantly in network investment
Posted by: McBride at 6/14/2011 7:27 PM

“Breaking-Up is Hard to Do”

AT&T states that one of the main reasons for this merger is the need for more spectrum to build a 4G mobile network. Why is AT&T’s management so willing to take a gamble with the valuable spectrum it already owns by promising to give DT $2 billion of it’s valuable spectrum as part of a record $6 billion break-up fee. AT&T’s management, lawyers and investment bankers must be fully aware that a merger request of this size has to go before the federal regulators, the Department of Justice and the Federal Communications Commission and has to answered questions of antitrust issues by Congress first before the merger can be approval. AT&T’s substantial break-up fee seems very irresponsible of current management risking $6 billion of share holders money with a roll of the dice. It would be unfathomable to think that AT&T’s team of advisers true intentions of having a $6 billion break-up fee was to convince the regulators and the general pubic it will be facing a mountain of political pressure and influence from the halls of Washington D.C. as well as Wall Street that the merger is to big to fail a theme all to common in corporate America today.# At the same time spending millions of dollars more on prime time national televisions commercials with a subconscious impression that the AT&T / T-Mobile merger has already been approved by the regulators and how the merger is going to benefit and give the wireless consumer more choice. A very bold move I must say being that the FCC also exercises power over the television airwaves and television commercials. A move that may turn out to be premature you know what they say about the fat lady singing. The merger would create a duopoly with 80 percent of all wireless subscribers and would have dominance over Sprint, the sole remaining national carrier, and the rest of the wireless industry, creating an anti-competitive duopoly. The consumers are going to be the biggest losers of this deal. While AT&T is going to try to spin it as a good deal to combine wireless spectrum assets, the fact is we end up with a duopoly and the consumers will have no choice. T-Mobile USA has been fairly aggressive in offering cheaper voice and data plans as it has tried to compete with its larger brethren. The competition has kept the prices in the market low enough. This has worked well for U.S. consumers. With the merger of AT&T and T-Mobile, the market is now reduced to three national players: AT&T, Verizon and Sprint. U.S. consumers are going to lose. When a market has fewer than the equivalent of six equal-sized competitors, the market just doesn’t function properly. The merger is a threat to free speech and openness on the wireless web. The FCC has ignored the mountains of evidence that our wireless markets are concentrated, anti-competitive, and is now fundamentally broken. Let’s not make AT&T the next company to big to fail.
“Rule the Air”
Anyone that wants to build a new wireless communications company and compete with AT&T by providing mobile service must first have access to usable spectrum which is a precondition to providing wireless services in any given market. Having access to spectrum is imperative to providing mobile service. Allowing AT&T to freely control most of the available spectrum will ultimately lock-out any competition in the mobile service industry. The AT&T and T-Mobile merger will kill off any competition by default because the competition will have no access to valuable and needed spectrum “the life blood” of the wireless business. When you own the spectrum you “Rule the Air” and you dine with the king's and queen’s of the world. By owning the spectrum you control every aspect of the whole mobile ecosystems. This merger would put AT&T in a dominant position with oppressive control over the network vendors, handsets, application developers, the mobile cloud, the mobile end user, the last mobile mile and more. The fixed desktop is fast becoming a dinosaur, (Microsoft) obvious foresight tells you that our life's are becoming more and more dependent on our mobile devices, in a fast changing world of mobile communications Apple, Droid, smart phones, iPads and more. Allowing an unprecedented consolidation and control over our nations most valuable airwaves sets a very dangerous precedent and will have a chilling affect on the open and free mobile Internet of the future. The merger would stifle innovation both in devices and on the network. The combined carriers would be able to leverage an unfair amount of market power to prioritize which handsets get used, what technologies work on those handsets and which Apps you'll be able to upload from the network. According to the Wall Street Journal, handset manufacturers are remaining mum on the deal, possibly out of a "fear of angering a powerful customer" in AT&T, which can make or break a device by simply deciding to allow it on its network.
It is up to the Commission to ensure the American people that all of the check and balances are in place. The U.S. antitrust laws in this country are alive and well and can not be manipulate or circumvent by anybody or company regardless of it’s size. 3 This merger request is anti-competitive behavior at worst, a bold and aggressive attempt to form a duopoly in the mobile service industry. This meager request would negatively impact every mobile consumer far into the future.
Posted by: McBride at 6/23/2011 8:18 PM

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