Yesterday, AT&T Wireless announced that they will purchase T-Mobile USA from Deutsche Telekom. This is another step in the wrong direction for the American mobile market. The reasons, however, are probably fairly subtle to the average American cell phone user -- so here's a breakdown of the issues, starting with the basics.
The Market is Pretty Broken Already
You're probably reading this article on a computer, using an Internet connection at your home, school, or office. It's also very likely that you purchased a computer, and then signed a contract with another company to provide you with Internet access. If you find a different Internet access provider that you like more, you can switch to them; after the switch, you can plug the same computer into your new Internet service provider, and then browse the same Internet that you were browsing before.
Yet, in America, it's often impossible or very difficult to do the same thing with a mobile phone. Most carriers expect to sell you a "free" phone, which you'll pay off over a long contract period that locks you into their network. And when your contract is finished, you can't just take that phone and move to a different provider. Your carrier has locked your phone, meaning that you can't use it on any network but that one.
It gets worse. Two of the four major US carriers -- Verizon and Sprint -- use a cellular technology called CDMA that is not the world standard. AT&T and T-Mobile use the global standard, GSM. (Ever wondered why you can't roam to a lot of other countries on Verizon?) So if you buy a Verizon or Sprint phone, you're pretty much stuck.
T-Mobile Respected its Customers
The alternative to a locked phone and a locked-in contract comes, unsurprisingly, in unlocked phones. Every phone on a GSM network has a little removable chip in the back called a SIM card. That little card is how the cell phone network knows that you're a paying subscriber. If you buy an unlocked phone it's trivial to move between AT&T or T-Mobile -- just like how you can move between Internet service providers when you're using your PC.
Or, to put it another way, just like how most European or Asian countries treat mobile phones today.
Problem is, AT&T has demonstrated absolutely zero interest in helping customers with unlocked phones. The beauty of an unlocked phone is being able to get a prepaid SIM card, and only pay for what you use. The beauty is in not only being free from contracts, but also free from a single mobile carrier, which is what makes an unlocked phone better than a phone from a "virtual" operator like Virgin Mobile, Boost Mobile, Tracfone, or Straight Talk. None of those virtual operators, by the way, will accommodate your unlocked phone either.
AT&T treats all of their pre-paid customers like second-class citizens, charging them exorbitant rates for subpar services. It's not even possible to get any kind of data service on a pre-paid AT&T plan. They're infamous even among loyal iPhone customers for doing everything they can to prevent actual usage of the data service, by blocking "tethering" to a computer, for instance.
T-Mobile, on the other hand, has always been the only US mobile operator to actually welcome unlocked phones on their network. They've had no-contract, reasonably priced data plans for years, and just last fall they introduced the first serious offering in American pre-paid data. As a T-Mobile prepaid customer, I can get twenty-four hours of unlimited data for $1.50. If I did that every day for a month, it would still only be $45 -- and they have discounted prepaid plans for longer time periods.
Better yet, T-Mobile lets me do whatever I want with that data. I can plug my phone into my computer, and connect to the Internet while on the road. I could get another SIM from T-Mobile, and put it into a USB stick, and use it as my primary Internet access: all pre-paid, all without a contract.
All this would be extraordinary, were it not for the fact that phone companies in "developing" nations like Thailand have been doing it for years, and do it for far less money than we pay in our expensive contract plans. And yet T-Mobile is the only company to do it in the US.
The End of Competition
Of course, it can be argued that competition has already failed in American telecom. Why else would three of the four major telcos fail so miserably at these things -- and why else would T-Mobile be able to fumble around on prepaid for so long, without being overtaken by a better challenger?
But at least there were two GSM providers out there. If T-Mobile did an about-face and became really evil, I could switch to AT&T. (Not much of a choice, but better than nothing).
An AT&T - T-Mobile merger means the complete elimination of competition in the GSM space. There are other "virtual operators" -- MVNOs -- but all they do is buy access to the big four networks. They don't have cell towers of their own, and if the big four want to put them out of business, they can.
Americans who wish to use an unlocked phone will have no choice but AT&T, should AT&T choose to serve them at all. Moving from one provider to another will require scrapping all your hardware, no matter how much you might like your phone. It's not only a frustrating waste of time, it's bad for the environment.
What's more, with only one GSM provider in the United States, visitors to America will find it virtually impossible to get reasonably-priced phone service while visiting here. It will be one more strike against America, which, thanks to our overzealous customs and air safety measures, already has a reputation as unfriendly to tourists.
Pending Regulatory Approval
A free and fair market for mobile phone service is not an unregulated one; a natural monopoly like telecommunications requires the creation of a competitive market through government intervention. (Remember Ma Bell?) Many other nations have used regulation to create fierce competition in the mobile sphere: I can fly to the United Kingdom, clear customs at Heathrow Airport, and within five minutes purchase a SIM card from a vending machine. Slip that card into my unlocked phone, and I can be making calls before I step out of the building.
Better yet, a market of unlocked phones would be a market where phones must compete solely on the quality of their features and software, and not whether they are tied exclusively to one network; it would be a market where network providers would compete solely on the quality and cost of their network. It would drive innovation, and improve the customer experience tremendously.
In short, there is no technical reason why things can't be better here. Federal regulators have yet to approve the sale of T-Mobile USA to AT&T. A good place to start improving American cell phones would be by denying this monopolistic move, and then starting some real soul-searching on regulatory reform. This is one area where America has been left behind for years; it's time for a change.