In March 2011, the world of wireless communications was stirred by the announcements of two wireless giants, T-Mobile and AT&T. AT&T had proposed to buy T-Mobile for some $39 billion and the deal, had it gone ahead, would have created a juggernaut of the wireless industry. The deal actually fell through later in the year and had anyway been a matter of concern for the Federal Communications Commission, which regulates American telecoms and feared the impact of such a merger. The proposed deal, though, did seem to indicate a new chapter in the history of an industry that has been heading towards consolidation for some time. Even now, despite the collapse of the deal, further wireless consolidation still seems likely eventually.
The path to consolidation in many ways began with the break-up of the Bell system in 1984. The Bell system was used for telecommunications by many areas of the United States and functioned as something of a monopoly, even acquiring the nickname Mother Bell due to its hold on the industry. The U.S. Justice Department intervened, however and the Bell system was split into smaller companies to reduce the power of a monopoly that might eventually have adversely affected cable internet services in the future, among other things.
Despite the break-up of the Bell system, consolidation of wireless providers of every kind has continued and appears to be something of an irreversible trend. The fact is that, due to the demands and resources needed to run a wireless network, huge companies are a necessity. For example, wireless networks work by covering a large area and providing for a huge number of subscribers within that region. Therefore, the company that runs the wireless network needs to be accordingly large so that coverage is guaranteed. The same is true for the capital cost of putting useful networks in place. Smaller companies will always struggle to raise the capital to build and maintain a network. There is a need for larger companies for this market to operate successfully.
Another aspect of the wireless industry that signals a requirement for larger, consolidated companies is that few wireless carriers can differentiate themselves much from one another. There is little one wireless service provider can do that another can’t, so it’s difficult for companies to compete and expand into new areas.
As growth areas within the wireless industry are pinpointed, wireless providers must attempt to take advantage of these, given that new subscribers are difficult to acquire. This is one reason that the AT&T and T-Mobile merger almost occurred. AT&T needed the extra bandwidth that T-Mobile could supply to them. It would have been useful for expanding into one of the wireless sector’s predicted growth areas, that of data and video, similar to that delivered by cable internet, which typically makes use of a lot of bandwidth.
Gaining more bandwidth from consolidation would help AT&T to better serve its existing subscribers in terms of connectivity, for example. Meanwhile, T-Mobile is losing subscribers, meaning that it has spectrum to spare. For this reason, the merger would have made sense.
Despite the collapse of the AT&T and T-Mobile deal, consolidation seems to be inevitable within the wireless sector. Because many wireless companies offer promotions such as discounts, the pressure is on financially. Some commentators believe that it is only a matter of time before other smaller wireless companies seek mergers to avoid financial difficulties.
