Will the T-Mobile Acquisition Topple AT&T?

Last Updated May 23, 2011 12:48 PM EDT

Last month, AT&T announced it was buying T-Mobile from Deutsche Telekom AG for $39 billion in cash and stock. Deutsche Telekom AG shareholders were certainly pleased, as dumping T-Mobile rewarded the company with a 20 percent share price increase over the next month, though AT&T stock didn't fare badly either. Here's why this acquisition might be as devastating to AT&T as the iPhone was beneficial.

Parallels to Time Warner and AOL
I'll never forget the great piece Jason Zweig wrote in The Wall Street Journal in 2009, entitled "You've Got Blackmail." This article recounted how agonizingly difficult AOL made it for him to cancel his account. Jason's experience hit close to home because I also went through similar tactics by AOL that I felt were downright unethical. The acquisition of AOL almost killed Time Warner and, today, Time Warner's stock is down 75 percent from its pre-acquisition price. Unfortunately, for AT&T, I see many parallels in the T-Mobile acquisition.

I was a consistently dissatisfied T-Mobile customer for nearly 11 years. The power of inertia, combined with the dread of making the transition to a new provider, kept me hanging on with cell service provider that only provided what I felt was horrible customer service, in return for a lower price point. I finally overcame that inertia when my new HTC MyTouch G4 Android phone started graying out, rendering it unusable.

Because it was new, I was entitled to a replacement. My attempt to get that replacement became a descent into customer service purgatory. I endured an hour and a half of the required "trouble shooting," which did not correct the trouble but did end up making me want to shoot myself. And after being passed from person to person like a hot potato, with one representative calling me a liar before hanging up on me when I asked for a manager, I finally hit the wall and drove over to Verizon to pick up an iPhone4.

In my opinion, T-Mobile had breached my contract by making it unreasonably difficult to get the replacement they were obligated to provide. Now once I had left T-Mobile, they suddenly became willing to replace my phone. But feeling as I did that I had finally escaped an abusive relationship, I had no intention of turning back, no matter how conciliatory the talk was now. See Dr. Phil? I was listening. I demanded a refund for my defective phone and requested a manager twice, and twice I was promised one would call me back. Of course, nobody called me back. T-Mobile retaliated for my departure by charging me an early termination fee. I later found out they had also denied the rebate my T-Mobile salesperson used to sell me this "free phone" in the first place.

Why T-Mobile is losing subscribers
In spite of having prices lower than rivals AT&T and Verizon, T-Mobile is losing subscribers and experiencing higher churn. CEO, Philipp Humm, blames the iPhone for the higher churn. I, on the other hand, blame Philipp Humm. The old adage that the quality of a company's customer service starts at the top couldn't be truer in this instance. Three calls to his office went unreturned. It was only by managing to get his email address that I received a call back from his office.

Mr. Humm's representative stated T-Mobile's position, which was: a) I hadn't adequately gone through trouble shooting, b) I would not get a refund for my phone, and c) I would be charged an early termination fee. Humm's assistant dismissed the need for T-Mobile to have a better understanding of the facts of the situation by listening to the recorded calls I had with customer service, or by having the phone examined. Just as she dismissed the need to explain why T-Mobile suddenly became willing to replace the phone when I canceled the account, or why two managers failed to call me back.

Humm's claim that the iPhone is responsible for T-Mobile's higher churn is inconsistent with Sprint's increase in subscribers without the iPhone. The service from Humm's office, however, was very consistent with the hellish customer service I put up with from T-Mobile for more years than I have a reasonable explanation for.

Turn the page to see how bad it might be for AT&T

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.