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Alan Weissberger

Why Telco Mergers Destroy Jobs and Stifle Competition

Telco Mergers Result in Job Losses:

Management from CenturyLink and Level 3 talked up their announced merger (CenturyLink will acquire Level 3) at the Citi Internet, Media and Telecommunications Conference this past Wednesday, January 4th. Combining Level 3’s backbone network with CenturyLink’s small and medium size business customers has definite advantages.

While the synergies, cost savings and complementary advantages were highlighted, nothing was said about job losses due to redundancies and consolidation of network resources.  Yet huge job cuts always occur when telcos merge or get acquired.   Let’s use AT&T as a textbook case study to prove this point.

In 2005 AT&T increased its workforce by nearly 17% from the previous year. When AT&T was acquiring BellSouth in 2006, executives said they expected to cut 10,000 jobs from the combined company after the deal closed (December 29th of that year).

Since then AT&T has also acquired Cellular One (2007), Centennial and Wayport (2008), Leap Wireless and Lusacell (2014), and DirecTV (2015). They’ve greatly expanded their operations in Latin America through collaboration with Carlos Slim’s América Móvil.

So with all those acquisitions, you’d think AT&T would have a lot more employees than it had in 2006.  WRONG!  At the end of September 2016, AT&T employed 273,000 people around the world, down from 310,000 when the Bell South acquisition closed over 10 years ago!  That’s a loss of 37,000 jobs despite all the employees AT&T acquired through take-overs.


Trump’s Telecom Advisors and “Crony Capitalism”:

President elect Donald Trump has several advisers who have sided with large telecommunications companies in regulatory debates and have argued against tough antitrust enforcement. That could result in huge damage to the telecom industry and provide less choice for consumers.

An editorial in the January 2, 2017 NY Times states:

“This is crony capitalism, with potentially devastating consequences. If Mr. Trump appoints people to the antitrust division and the F.C.C. who are willing to waive through a Sprint/T-Mobile merger, he will do lasting damage to the economy that far outweighs any benefit from 5,000 jobs, jobs that might have been created even without the merger. Individuals and businesses will find wireless service costs a lot more when they have only Verizon, AT&T and T-Mobile/Sprint to choose from.

A combined Sprint and T-Mobile would inevitably cut thousands of jobs as executives merge the companies’ networks, stores, billing systems, customer service departments and so on. That has happened time and again after big telecom deals.”

AT&T- Time Warner Analysis:

That brings us to AT&T’s proposed for $85.4 billion acquisition of Time Warner Inc. For decades, it was felt that combining content/media with telecom/distribution companies would result in far too much control and power for the acquiring company. But Comcast’s acquisition of NBC Universal seems to have changed that and given AT&T the impetus to bid for Time Warner.

FBR Media & Telecom staff wrote in a research note published last week:

“We see AT&T’s acquisition of Time Warner closing and setting a template for future deals….we see potential for cable companies to gain more freedom to use their own backhaul facilities to favor in-house 5G services, driving more cable/wireless mergers. We also see wireless/wired operators gaining freedom to favor in-house content, with such things as zero-based data service and performance advantaged private nets, or by charging rivals more for data access/performance. That should drive more telecom/content mergers….”

Not so fast….According to a January 5th Bloomberg article, Donald Trump and his chief strategist oppose the AT&T-Time Warner deal.

Donald Trump remains opposed to the mega-merger between AT&T Inc. and Time Warner Inc. because he believes it would concentrate too much power in the media industry, according to people close to the president-elect, who has been publicly silent about the transaction for months.

Trump told a friend in the last few weeks that he still considers the merger to be a bad deal, said one of the people, who asked not to be identified because the conversation was private. Trump’s chief strategist, Steve Bannon, is also opposed to the deal, another person said.

In October, before the election, Trump said his administration wouldn’t approve the merger, saying, “It’s too much concentration of power in the hands of too few.” He cited the deal as “an example of the power structure I’m fighting.”

Conclusions:

This author strongly believes that media and telecom M & A is incredibly destructive to the telecom industry, results in less competition and higher prices for consumers and concentrates too much power in the acquiring company, e.g. AT&T if they take over Time Warner.

Telecom M &A increases the size of the combined company, giving them a more dominant position in markets. This enhanced market power results in higher rather than lower prices for services and less choice for consumers and business customers.

With respect to AT&T’s proposed Time Warner acquisition, consumer interest groups and competitors are worried that AT&T would use Time Warner’s programming as a bargaining advantage.

“DirecTV, for instance, might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer,” advocacy group Public Knowledge has argued.  They’ve also suggested that AT&T might try to drive customers to its various network platforms (especially DirecTV or DirecTV Now) or exclude Time Warner content from data caps on its wireless and wireline broadband networks.

AT&T has already provided a huge freebie for customers that subscribe to its 3G/4G cellular service and DirecTV as per this press release:

“Data Free TV” feature lets you stream DIRECTV content without it counting against your AT&T wireless data allowance. You can stream video via your DIRECTV App without using your mobile data when you’re on the go with Data Free TV on the AT&T mobile wireless network. It’s easy and automatic after registering and it doesn’t count against your AT&T mobile data allotment.”

AT&T CEO meets with Trump to discuss job creationAT&T CEO Randall Stephenson

[Note that if an AT&T 3G/4G cellular customer subscribed to Comcast/Xfinity (or other) pay TV service, their streaming or downloading of DVR stored videos would count against their data allowance which could easily max out with heavy mobile video use.]

Let’s close with a quote from former FCC commissioner and now consumer interest advocate Michael Copps:

“The sorry history of megamergers shows they run roughshod over the public interest.  Further entrenching monopoly harms innovation and drives up prices for consumers.”

Addendum:

It’s intriguing and ironic that AT&T CEO Randall Stephenson met with President elect Trump on January 12th at Trump Tower in NYC.  The discussion focused on job creation, wage increases and “the policies and the regulations that stand in the way of them creating further jobs,” said incoming White House press secretary Sean Spicer.   That from a company that’s reduced jobs (i.e. total number of employees) by 14% in 10 years after numerous acquisitions.

Author Alan Weissberger

By Alan Weissberger

Alan Weissberger is a renowned researcher in the telecommunications field. Having consulted for telcos, equipment manufacturers, semiconductor companies, large end users, venture capitalists and market research firms, we are fortunate to have his critical eye examining new technologies.

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