The News Spring

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By Joshua E. Barbach

May 2004

AT&T Wireless-Cingular: Revealing a Lack of Regulatory Progress

Its impending merger with Cingular has been the biggest story amidst a rush of news regarding AT&T Wireless during the past few months. What is not often discussed around this merger it what it will mean to both wireless and wireline markets in the United States. Despite some surface struggles, if this deal is permitted to go through, it will reflect the strength and ability of the RBOCs to manipulate the telecom environment.

AT&T Wireless has had two consecutive unprofitable quarters. Much has been made of the fact that AT&T Wireless lost several hundred thousand customers since wireless number porting became available in November. In reality, the percentage of customers moving between carriers as a result of WNP is small - less than 2% of the total customer base according to the FCC. Many customers are bound by long-term contracts and do not have the freedom to switch providers. Regardless of any potential customer losses that could fall out of this merger, the Cingular-AT&T Wireless entity will be a dominant force.

Largely overlooked in this deal is its relationship to the wireline market and deregulation. Whatever the telecom act of 1996 may have hoped to achieve in moving away from monopolistic policy has hardly been accomplished. A review of FCC published documents reveals significant market aggregation by the RBOCs. Post-merger, the entities behind Cingular - BellSouth and SBC - would control a collective 37% of the US wireless market and 44% of all local access lines. When the total customer numbers are summed, SBC and BellSouth will control roughly 41% of the 300 million or so wireline and wireless accounts in the U.S.

SBC and BellSouth are not alone in building lofty numbers. Verizon holds 31% of all local access lines. Along with its wireless partner, Vodafone, Verizon holds 30% of the wireless market. In contrast, the collective CLEC market share of access lines has reached a whopping total of 14.7%. This is up from last year's 11.4%. The rise in percentage, however, may be due to a decrease in the total number of wireline accounts resulting from customer migration to pure wireless phone service. The total number of ILEC access lines actually fell from 167 million in 2002 to 155.9 million in 2003. During the same period, total mobile subscribers increased from 129 million to 147.6 million.

When RBOCs cry for help against the incursions of mobile and cable, it is difficult to take them seriously because of their control over both wireline and wireless markets. Even the 3rd through 5th largest mobile operators are not as strong as the largely RBOC owned leaders. Sprint PCS has 15.9 million customers, T-Mobile 13.1 million, and Nextel 12.3 million. Their collective market share is only 33% - barely more than Verizon holds alone - and they naturally have little or no share of the local wireline market. Ultimately, the Cingular-AT&T Wireless merger is a yardstick for where the regulatory environment stands and for what it has perhaps failed to accomplish in promoting broad competition.

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