How Wireless Merger Will Affect Customers
Dec. 15, 2004 — -- The planned merger of wireless giants Sprint Corp. and Nextel Communications means 70 percent of all U.S. cellular subscribers will be served by one of the three major wireless companies that control the market. It could be a boon for the companies' shareholders, but what will the consolidation do to cell phone users and their monthly rates?
Some analysts believe having three major companies -- Verizon Wireless, Cingular Wireless and the new Sprint Nextel -- competing for customers could drive down the cost of wireless payments. But consumer groups are concerned recent industry mergers will decrease competition and eventually push prices higher.
The average wireless phone bill has dropped 20 percent over the last decade even as monthly talk time has increased, according to Joe Farren of the Cellular Telecommunications & Internet Association, a cellular industry group.
"This has always been a tremendously competitive industry. I think we'll continue to be enormously competitive, and that will benefit consumers," Farren said.
One reason for the increased competition and price drops in recent years has been the portability of cell phone numbers. Since November 2003, wireless customers have been permitted to shop for the best price and keep the same phone number even if they switch providers. The flexibility this affords, combined with growth in a market that is not adding new subscribers at the same record pace of a few years ago, means the market could see prices continue to drop.
"I don't think it's actually going to have a big impact on price," said Michael King, analyst with the mobile and wireless group at Gartner, a research firm that focuses on technology. King noted that in addition to the big three cellular providers, the presence of T-Mobile, the No. 4 U.S. cellular service provider, would keep competition alive.
"All the technology they're spending money on is for capacity enhancements, which will allow them to offer better per-minute rates. I think you're going to continue to see prices drop on a per-minute price basis," he said.
But advocates like the Consumers Union and the Consumer Federation of America are concerned that having fewer companies in the industry could lead to hefty price increases. In a statement, the Consumers Union said the Sprint-Nextel merger "likely spells an end to the lower prices and innovative services consumers have received from cell phone companies."
Consumers Union is launching a Web site to help customers navigate issues surrounding cell phone mergers.
There are some industry analysts who believe the most likely scenario is one where the price of cell phone service stabilizes in the near term.
Regardless of price fluctuations, consumers are expected to see benefits in at least one aspect of their service: call quality. The deal announced today (which still needs approval from the Federal Trade Commission) and February's joining of AT&T Wireless with Cingular, which combined the first- and third-biggest cellular providers into the No. 1 U.S. wireless company, would expand the two companies' holdings of cellular towers and give customers better network coverage.
Through the mergers, Cingular and Sprint Nextel will double the number of towers they operate, giving customers a bigger, stronger network.
"It will be a much bigger network, and most definitely they'll have better coverage than the two by themselves," Gartner's King said.
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