The Carrier Wars – Can we thank government regulation?

We talk a lot about the Carrier Wars and how it is impacting the mobile market, as shrinking growth options drive vendors to invite creative ways to steal clients from one another.  But the New York Times added an interesting angle in a recent article giving the federal government some credit for this cost-lowering, two-year-contract-busting, annoying-fee-eliminating fight.  And they may have a point…

The gist of the argument is that the government regulators, when they blocked AT&T’s bid to merge with T-Mobile, forced the competition we are seeing now.  This didn’t do much more than annoy AT&T, as they were already in a deadlock with Verizon.  But it did mean that T-Mobile, as the laggard in the pack, had to reinvent itself to stay alive.   This led to some interesting new pricing and contract changes, delivered with flair compliments of their loud and proud CEO John J. Legere.

As the F.C.C.  staff explained in a lengthy report, they feared that shrinking the four major carriers to three would give providers an incentive to raise prices. However, they knew that if AT&T was forced to call off the deal, it would owe T-Mobile a breakup fee worth at least $3 billion in cash, plus an additional $1 billion in rights to wireless spectrum. The money and spectrum would allow T-Mobile to build out its network infrastructure, making it more attractive to new users. Regulators then hoped T-Mobile would disrupt the market by aggressively courting new users andprompting change across the industry.

The gamble seems to have paid off.  To those of us watching from the sidelines, those first announced changes by T-Mobile, and the return volley from AT&T, have unleashed a range of new lower costs and more flexible contracts. Some welcome options T-Mobile is offering, and competitors are starting to match, albeit not as aggressively:

  • No more traditional two-year contracts – you’re free to leave whenever.
  • Disconnecting the the price of a phone from the price of wireless service.  Pay for service, pay for the phone.  Once the phone is paid off, monthly fees go DOWN.
  • Text and web while traveling in 100 countries at no extra charge.
  • Offers to pay off the early-termination fees for new customers switching from other carriers.

And it appears T-Mobile’s bold pricing efforts are workingIt reports attracting four million new customers over the last year.  Granted, that admittedly came with a hit to their profitability, which leads competitors to claim the changes are unsustainable.  But by starting a chain reaction of lower prices and more freedom for customers, it benefits the entire industry.  And it will be hard to go back….