AT&T and Deutsche Telekom, desperate to rescue AT&T's purchase of T-Mobile, are reportedly offering to get rid of up to 25% of T-Mobile's assets to get the Department of Justice off the companies' backs.
Divestiture worked in past telecom mergers, but this isn't like those mergers, and I don't think selling off 25% of T-Mobile would help competition. Here's why.
The Department of Justice identified the core problem as AT&T eliminating a low-cost, national competitor. So any divestiture would have to address this issue, helping to bulk up a low-cost, national competitor.
Verizon Wireless has the money to buy divested markets and convert them from GSM to CDMA, but that would just concentrate more power in AT&T's and Verizon's hands, driving up prices.
For Sprint, MetroPCS, U.S. Cellular and Cricket, a T-Mobile sale is a bit of a poisoned apple. Sprint doesn't have the money to build out the Clearwire spectrum it already controls. None of them need the huge financial burden of integrating a totally incompatible GSM network with their existing CDMA systems. In fact, that could damage the smaller carriers as much as it helps them, becoming a gigantic time and money suck.
A 'Mini' T-Mobile?
That leaves spinning off an independent "mini-T-Mobile" as an option, or letting someone like DISH Network or a cable company pick it up. With a quarter of T-Mo's subscribers, Mini-T would have about 8 million customers, making it slightly smaller than MetroPCS. While MetroPCS is great, it isn't truly national, and the DOJ has pointed out that it doesn't compete in the same league as the big national carriers. So that wouldn't save national competition, either.
With that solution, I'm also reminded of what happened to Alltel. After Verizon swallowed Alltel, it divested a bunch of Alltel markets. Some of them got bought by AT&T. Others were turned into a teeny, tiny independent carrier now called Alltel that, with only 800,000 subscribers, isn't a competitive threat to anyone.
Ironically, if MetroPCS and Cricket merged, AT&T could make a stronger argument that national, low-price competition was growing. But the government can't order independent third parties to merge just so AT&T can get what it wants.
The Condition AT&T Wouldn't Accept
So let's take divestiture off the table for now. It turns out there is a condition the DoJ and FCC could put on the AT&T/T-Mobile merger that would preserve competition, but AT&T isn't going to like it.
Some reports have said AT&T is promising to preserve T-Mobile's low-cost service plans for a certain amount of time. That's a smokescreen, of course; the day that agreement expires, prices will rise.
But if the DOJ/FCC ordered AT&T to offer up its 3G and 4G networks at regulated, wholesale rates to virtual network operators (MVNOs), competition would flourish. Right now plenty of MVNOs exist (such as Simple Mobile, H2O Wireless and Consumer Cellular), but the major carriers structure their contracts so they can't compete with their hosting carrier's primary business.
That is, of course, the deal that old Ma Bell made with the government in exchange for having a monopoly: regulated rates. Considering that Verizon would be under no such requirement, I can't see AT&T going for that restriction.
For more, see On AT&T/T-Mobile Merger, Justice is Served as well as 7 Alternative Buyers for T-Mobile USA and the slideshow below.