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Why the AT&T T-Mobile Deal Is Good for Consumers

As soon as ATT announced its intention to acquire T-Mobile, critics came forward to denounce the proposed merger as anti-competitive and bad for consumers.

Parul Desai, telecom policy counsel with Consumers Union, publisher of Consumer Reports, told the Los Angeles Times "What improves customer satisfaction is when carriers compete with each other. When you combine carriers that had been competing with each other, it's hard to see how customer satisfaction will improve." Sprint CEO Dan Hesse concurred and went on to say that the merger will stifle innovation.

It is a common perception that more competition is good for consumers. When the facts are examined, one could support the opposite view. The wireless service business has been highly competitive for many years. According to the Cellular Communications & Internet Association, there are over 180 wireless providers in the US. Yet this competition has produced very little customer satisfaction or innovation. According to Forrester's 2010 Customer Experience Rankings, the large national cell carriers in the US have a ranking that averages 65%. That is a D grade at most universities. And with regard to innovation, they are noticeably absent in any top rankings.

Companies with proprietary advantages rank at the top
Apple, on the other hand, has a proprietary platform and brand identity with no direct competitors. They continue to be number one in Business Week's innovation rankings, and they top PC manufacturers in customer satisfaction rankings. In Fast Company's ranking of the most innovative companies, Apple is number 3. Who is number 1? It is not a wireless service provider or a company with lots of competitors. It is Facebook - another company with no direct competition.

Good marketers would predict this result
Good marketers brand their products as proprietary by employing what Rosser Reeves called the Unique Selling Proposition. When successful, they give buyers clear reasons to only buy their products from them. If unsuccessful, buyers are unable to distinguish between competitive choices. This leads to confusion and buying paralysis since customers like to have a choice, but are stymied by too much choice.

Wireless providers have done such a poor job of positioning their services that they are perceived as commodities that are confusingly similar. The primary way they retain customers for any length of time is by locking them into 2-year contracts with huge cancellation penalties or by subsidizing in-demand products such as the iPhone. Once two-year contracts expire, carriers experience very high churn rates.

How will the ATT acquisition of T-Mobile benefit customers?

Unlike the predictions of the naysayers, the ATT acquisition of T-Mobile has the opportunity to help customers for the following reasons.

  1. Better coverage. The complementary spectrum positions and operations of the two networks will give better coverage to the combined customer base.
  2. Clearer choice and less confusion. Since both networks are GSM, the combined network will give customers a clearer brand choice - differentiating it from CDMA networks used by Verizon and Sprint (also rumored to be flirting with merger talks).
  3. Wider iPhone and iPad distribution. T-Mobile will inherit the right to sell the iPhone and other Apple wireless products.
  4. Better service. AT&T can learn from T-Mobile's reputation for better customer service.
One customer's view
When asked for his view of the merger, here's what Alan Ormsby, a Sherman Oaks, CA resident, said in the same Los Angeles Times article referred to above: "Am I hallucinating, or was phone service actually better back in the days when AT&T was the only game in town? I seem to remember phone bills that listed calls that had been actually made and weren't crowded with all sorts of mysterious incidentals that even an MIT grad can't comprehend. In those days, repairmen were sent out quickly and efficiently, and actual operators answered the phones and provided information without charge."

No, Alan. You are not hallucinating. I remember the same benefits from AT&T when they had a monopoly. Perhaps Parul Desai is unaware of this greater customer satisfaction or the many innovations that ATT gave the world.

What impact do you think the AT&T Mobile deal will have on innovation and customer satisfaction? What you think is the relationship between competition, customer satisfaction, and innovation?


Ira Kalb is president of Kalb & Associates, an international consulting and training firm, and professor of marketing at the Marshall School of Business at University of Southern California (USC). Follow him on Twitter.
image courtesy of flickr user bnpositive
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