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Yesterday's deal between T-Mobile and Cingular ends a three-year-old joint venture between the two rivals and will have significant effects on subscribers in California and New York - but not necessarily for the mobile phone user.

The two carriers have run a network sharing agreement which gives T-Mobile's Californian subscribers access to Cingular's network in California, and Cingular customers access to T-Mobile's infrastructure in New York. T-Mobile has bought part of the original PacBell network covering California and Nevada from Cingular and it gains exclusive access to its New York operations. In addition, it has bought spectrum from Cingular in San Francisco, Sacramento and Las Vegas. The deal cost T-Mobile $2.3 billion and the two carriers will go it alone from next year. Analysts judged that the venture had worked out in T-Mobile's favor, as it had gained more users in California than Cingular had on the east coast.

But for long-suffering Cingular and T-Mobile users hoping for better reception in California, celebrations may be premature. Before morphing into Cingular, PacBell's GSM network had excellent coverage, but a relentless sales drive and in influx of new T-Mobile subscribers (now numbering 1.7 million) saw quality nose-dive. T-Mobile users in California are likelier to be the happier, as they lose the Cingular subscribers and gain additional spectrum. Cingular's customers will be bumped onto AT&T Wireless' new GSM network, should the $41 billion mega-merger be approved by the regulator as expected. T-Mobile certainly seemed best pleased: it was the only one of the three carriers involved in the swap to mark the news with a press release.

Cingular must be confident that AT&T Wireless' GSM America network, freshly upgraded from TDMA, can take the strain in California. Only the two companies know for sure how much capacity this can handle. Ominously, T-Mobile's experience demonstrates that despite offering less-than-stellar service, a carrier can still gain a large number of subscribers in the medium-term through attractive pricedeals. Cellphone users simply get used to leaning out of their apartment windows to get a signal.

Wall Street and corporate bean-counters love mergers because they squeeze costs out of the system. But cost efficiencies aren't necessarily passed onto consumers. Only yesterday the business-friendly Phoenix Center predicted that the merger would result in higher prices for cellphone users of 8.4 per cent. The authors of the report use several metrics including one called the Herfindahl-Hirschman Index, which tries to quantify the amount of consolidation within an industry. The report discounts the many small local operators in the US and focuses on the big five carriers who offer national service: Verizon, Cingular, AT&T Wireless, Sprint, T-Mobile and Nextel. According to the authors, because the largest operators - Verizon, Cingular and to some extent Sprint - were created out of mergers between the Baby Bells (Verizon was created out of a merger between Bell Atlantic, GTE and smaller providers , they find collusion far more attractive than competition.

There's a footnote with a damning piece of supporting evidence, citing SBC Chairman and CEO Ed Whitacre.

Transcript of SBC Communications Analyst Meeting, FD (FAIR DISCLOSURE) WIRE (November 13, 2003)
UNIDENTIFIED PARTICIPANT: Apparently you’re going to be offering a voice over IP product out of region; won’t that anger perhaps Bell South and -
EDWARD WHITACRE: Well, absolutely it will. And just like if they come in (inaudible) it’s going to anger us. Of course, the answer to that is, yes, but it’s a non-issue since we have a good partnership and it’s not happening.

Uh-huh. ®

Bootnote: For a detailed, county-by-county breakdown of who has what spectrum in the AT&TW/Cingular merger, you'll find this document useful [via the FCC: PDF, 2.5 MB].

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