Tuesday, November 29, 2011

Why did AT&T need T-Mobile so badly

In 1983 AT&T was broken up because it was seen as an Anti Trust issue. Over the next twenty years technology have turned the industry on its head. A move from Physical Plain Old Telephone (POT) lines using a TDM backbone to a mainly wireless and IP driven backbone. So why do we now have a huge company called AT&T. You can thank Steve Jobs in part because the Iphone gave AT&T a huge edge in competition. If you remember the 1984 Apple commercial, it was like Steve Jobs instead of taking a sledge hammer to the tyrant. Rather Steve walked up to the tyrant and handed him the golden key and got a huge pay off. Now AT&T is loosing the POT market to people going wireless only, it is no longer has the IPhone as a competitive edge. It is faced with a huge problem, with faster wireless data backbones it is just a matter of time that people bypass the Cellular phone network and go directly to VOIP on their cell phones. That why you've seen those unlimited plans since this a preemptive move to stop somebody turning a 2 GB data plan is 2100 minutes of 16kbps compressed VOIP traffic. It's hard to charge a $100 dollars a month when you are using just $30 dollar data plan worth of connectivity. We've seen moves to third party providers such a Cricket or Simple mobile start to drive prices down with competition. A lot of these providers use the T-Mobile and Sprint networks to provide their service. If AT&T can create an oligopoly between itself and Verizon it stands a good chance of blocking the move to the commoditization of wireless services. This will put the USA at a huge competitive disadvantage it the infrastructure that powers the next fifty years of growth is in the hands of a few companies trying to maximize profit by creating an artificial scarcity of wired and wireless data networks. The only real solution to this problem is to break up the vertical integration of both phone and cable companies. Separate the infrastructure from the product by having a matrix of product providers and infrastructure providers to create a low cost generic solution. A product driven by separating the content from the transport providers. A simple calculation is $100 per month two year contact with a $200 iphone is $2,600. A $40 dollar per month plan with a $600 phone is $1,560. You are paying over $1,000 dollars more for that phone given the current system. Can you see why AT&T will spend $39 Billion. With 100 million customers with a $500 premium is $50 billion dollars of profit per year. Why is nobody crying fowl in Washington except the Justice department and FFC. Well AT&T is one of the largest political/lobbyists in the DC area. The fact that AT&T went ahead with a merger so much not in the public good shows how little they thought of the current political system.

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