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AT&T Wireless: Less competition means... lower prices?

Consumer Reports News: June 13, 2011 08:28 AM

AT&T Wireless, which is attempting to buy T-Mobile, the smallest of the big four carriers that own national cellular networks, is advancing a novel new economic market theory: Less competition produces lower prices for consumers.

In the section of its website dedicated to promoting the T-Mobile acquisition, AT&T has been running a chart that purports to show that, since 2000, "when [cellular] carriers combined to achieve efficiencies, U.S. wireless prices fell." In other words, AT&T argues that the elimination of low-priced competitor T-Mobile will produce lower cellular prices.

More significantly, AT&T is asserting that mergers, overall, cause lower prices by allowing efficiencies of scale that allow a smaller number of big carriers to cut costs, which they then deliver to consumers. The company credits the likes of Cingular’s February, 2004 takeover of AT&T Wireless and Verizon’s June, 2008 acquisition of Alltel for the big decline in prices for cellular voice service since 2000.

That seems, at best, to oversimplify the cellular market. For one, it overlooks the possibility that prices have fallen because the market for cell phones has been expanding—up from 97 million subscribers in 2000 to 293 million in 2010—and cellular carriers have scrambled to cut prices and improve service so that they could grab a bigger share of a growing pie that’s now worth more than $150 billion.

The Federal Communication Commission annually assesses the level of competition in the wireless industry, and last year’s report took 281 pages to analyze the myriad and complex forces at work. Nevertheless, among the FCC report’s key findings was this: “Competition has played…an essential role…leading to lower prices and higher quality for American consumers.”

The 2010 report also identified T-Mobile as something of a fly in the pie for AT&T and Verizon, who prefer to charge premium prices for cellular service. For example, the report found that the focus of price competition had shifted to unlimited service plans, and “The biggest pricing changes were made on T-Mobile’s unlimited service offerings, which include bundled voice, text and data offerings as well as an unlimited voice-only calling plan.”

The FCC noted that before T-Mobile launched its new pricing plans, Verizon Wireless and AT&T charged higher prices for its services than T-Mobile and Sprint, and “T-Mobile’s price changes appear to have prompted Verizon Wireless and AT&T to narrow the price premium on unlimited service offerings.”

That’s the kind of competition that AT&T apparently seeks to take away from consumers by buying up T-Mobile.

Jeff Blyskal

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