AT&T’s Blame Game: We Didn’t Raise Prices; the FCC Did
AT&T (T) is heating up its retaliatory campaign against the Federal Communications Commission for denying its $39 billion acquisition of T-Mobile. Speaking at a conference, AT&T Chief Executive Officer Randall Stephenson claimed once again that the merger’s death directly resulted in AT&T’s raising mobile data prices 30 percent earlier this year, The Hill reported.
Stephenson chose an apt pulpit. He delivered his speech before the Milken Institute, founded by and named after junk-bond trader Michael Milken, who was convicted of felony securities violations in 1990 and sentenced to 10 years in federal prison. Neither Milken nor Stephenson has any great love for regulators.
We have heard Stephenson’s refrain before. He tried to make the same case to analysts and investors in the fourth-quarter earnings call, claiming the FCC was picking winners and losers in the mobile industry. Without T-Mobile’s 4G airwaves, AT&T doesn’t have enough capacity to meet the enormous mobile data deluge generated by millions of new smartphones, which in turn is forcing AT&T to raise data prices—or so Stephenson’s argument goes.
The truth is no one forced AT&T to raise prices. AT&T just raised prices because it wanted to. It’s just scapegoating the FCC, whether to make some petty point or to deflect attention away from a good old-fashioned money grab. AT&T had, and still has, plenty of headroom to grow its network capacity. Let’s break down why.
• While it’s true AT&T raised prices on its low- and mid-tier data plans, it also raised its data caps significantly. A $30 per-month customer now gets 3 GB per month rather than 2 GB for $25. If AT&T is so hard up for capacity, why is it inviting its customers to consume more gigabytes for less cash? AT&T is actually gaming the system here a bit, because it knows few customers can conceivably consume 3 GB per month on a smartphone. Still, AT&T effectively lowered its per-megabyte rates for mobile data, which is not something a carrier strapped for capacity would do.
• AT&T still has plenty of networks it can build. AT&T’s initial 700 MHz LTE rollout is only a third complete. It’s also sitting on a bunch of Advanced Wireless Services (AWS) spectrum that it hasn’t even touched yet. Ma Bell could also follow T-Mobile’s and Sprint’s examples and refarm the spectrum used by its inefficient GSM networks for HSPA and LTE. Eventually AT&T will need to go out and get more spectrum—there’s no denying that—but today it’s nowhere near exhausting its airwaves. There’s nothing stopping it from building its networks more quickly. It has the money: $39 billion to be exact.
• AT&T’s problem isn’t that mobile data traffic is growing too quickly; it’s that mobile data revenues aren’t keeping pace. AT&T’s mobile data traffic is doubling every year, but it’s only adding an incremental number of new smartphone customers every year. What gives? AT&T’s existing customers are consuming more megabytes, but since they’re nowhere near their caps, they’re not paying anything more. This is AT&T’s own fault, though, because of the way it structured its original smartphone plans. AT&T sold customers big buckets that very few people could consume each month. Now that customers are actually eating the gigabytes they have paid for, AT&T is complaining it’s running out of capacity. It’s hard to be sympathetic.
This isn’t the last we’ve heard from Stephenson on the issue. Much of AT&T’s public communications since the merger’s failure have been direct or indirect assaults on regulators. Ma Bell even used the Super Bowl as an excuse to decry its so-called capacity problems. And as long as AT&T keeps making these claims, we’ll continue to dispute them.