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Craig Moffett from Wall Street: Wireless Prices Should Go Up Through Mergers

Dave Burstein

Jules (Julius Genakowski) may soon have a stark choice: should U.S. wireless prices go up or down? Jules talks a good game about wanting more competition and the evidence is overwhelming that going from 6 to 4 majors resulted in higher prices. Merrill Lynch a while back calculated margins went up $billions each year because of the consolidation. You can hire an economist to say almost anything, and two at the University of Chicago happily stretched the truth on this in the past. But the evidence both academic and common sense is clear. Allowing DT and Sprint to merge, or anything that gives more market power to the big guys, will hurt consumers. I hope Jules has enough courage to step in, ideally with a simple warning now that avoids a year of agony and litigation.

Pete Svensson in an important AP story quotes Moffett: "The U.S. wireless market is crying out for consolidation, ... there are too many cooks in the kitchen." Svensson adds "Ironically, the biggest beneficiaries of a T-Mobile-Sprint deal could be AT&T and Verizon Wireless. Moffett notes that those companies would benefit from a 'more rational' price structure, with fewer players to compete on pricing."

What wall street calls "rational pricing" is very simple: it's the monopoly pricing they would come to if the CEOs met in a back room and cut a deal. That's illegal, of course, although it happens. Far more common is that the companies "signal" to each other what the prices should be, and all follow. When four U.S. wireless carriers almost simultaneously raised the SMS price to a ridiculous 20 cents, it became clear the wireless guys are effectively signaling. Verizon's price just drop before Sprint's well-publicized "unlimited" offer was a clear signal to Sprint not to drop prices too much. Verizon would match, making the offer ineffective even if they had to take a loss to "discipline" the price-cutter. I've also seen behavior at Bell Canada, AT&T and Comcast that looks like effective signaling. As one very senior executive told me, "We've become so good at signaling we don't need to meet at airport hotels any more."

Svensson also noted "In May, when the latest round of speculation about a T-Mobile-Sprint combination was in the air, Stifel Nicolaus analysts said a deal would likely pass antitrust muster as long as the companies could present a credible story about being stronger combined than apart."

I think Jules is smart enough to know that's b**** no matter how many well-paid economists support the companies. Everyone's watching Jules to see if his actions match his rhetoric or whether he'll be as much a failure as his two predecessors. He's totally dedicated and brilliant, but politics is tough.

By Dave Burstein, Editor, DSL Prime – Dave Burstein has edited DSL Prime and written about broadband and Internet TV for a decade. Visit Page
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