Why the AT&T/T-Mobile deal may mean less than it seems

Earlier today, AT&T announced an agreement with Deutsche Telekom to acquire its U.S. T-Mobile operation for $39 billion in cash and stock. The timing of the announcement was very interesting: AT&T and T-Mobile chose to announce the deal on a Sunday, while Western forces are attacking Libya, the Japanese disaster continues and the U.S. college basketball championships are underway--in other words, when very few people are likely to pay attention to it.

Part of the companies' caution is due to the fact that the deal will undergo intensive investigation by the Federal Communications Commission, Federal Trade Commission and U.S. Department of Justice. There's an excellent chance that the deal will be challenged in court; it will add T-Mobile's 33.7 million subscribers to AT&T's 95.5 million, making the merged company the largest mobile operator in the U.S.

On the other hand, there's also a good chance that the deal will go through, at least in some form. T-Mobile is the Number 4 mobile operator in the U.S., the smallest of the four nationwide operators. It's struggling to come up with the capital to upgrade its network to the worldwide LTE standard, and despite its ads portraying its existing network as 4G, most consumers realize that it's not true. Both AT&T and T-Mobile use the same GSM transmission system (albeit at different frequencies), so integration of the two companies' networks will be much easier than if the rumored Sprint/T-Mobile merger had occurred.

AT&T is likely to argue that it's the most natural partner for T-Mobile, and that T-Mobile is unlikely to survive as a national operator in the long term if it stays independent, is acquired by a company with an incompatible infrastructure, or is acquired by a private equity investor that doesn't have extensive telecom experience.

The obvious concern is that an AT&T/T-Mobile merger will result in higher prices and poorer service for consumers, and given AT&T's prior track record with acquisitions, that's likely to be the case. Regulators may require the two brands to maintain separate identities, even if the infrastructure of the two companies is merged. My belief is that AT&T will continue to use T-Mobile as a "value" brand to compete with prepaid and lower-priced postpaid services from operators such as MetroPCS and Leap Wireless, but will migrate T-Mobile's most profitable customers to AT&T.

T-Mobile may not have much of a future in the U.S., whether or not the AT&T acquisition goes through. It's up to AT&T can convince regulators that the most likely outcome for an independent T-Mobile is, at best, to become a regional carrier without the scale to compete with AT&T, Verizon and Sprint.

Adobe: Saying and doing are two different things

Recently, Adobe executives were quoted saying that the company will not put any additional effort into its Flash-to-iPhone cross-compiler, and that its focus will be on providing the best possible experience on Android and other mobile platforms. I'd suggested that approach in a blog post several weeks ago. Today, however, Adobe has launched an advertising campaign and published a full-page ad in the Washington Post with an open letter from the company's founders chastising Apple for its actions.

It seems clear that Adobe doesn't really know what it wants to do. If the company is truly focusing all its efforts on Android and other platforms, why is it launching an anti-Apple advertising campaign? The ad in the Washington Post certainly wasn't intended to influence Apple--the last time I checked, Apple's headquarters were still in Cupertino. Adobe's ad is intended to influence the Federal Trade Commission and Justice Department in their preliminary investigations of Apple.

If Adobe can't get Flash working on other platforms and is therefore desperate to get onto the iPhone and iPad, that's a problem with Adobe's own engineering team, not an issue for the U.S. Government. Adobe has missed a series of self-announced release dates for Flash 10 on a variety of mobile platforms. Apple's actions haven't helped things for them, of course, but Adobe has painted itself into this particular corner. Also, we don't know the details of the discussions between Apple and Adobe; the companies have been talking about porting Flash to the iPhone OS since the release of the original iPhone, and we don't know how much of the current situation is the result of bad blood that arose in those negotiations.

Adobe has lobbyists who can try to convince the FTC and Justice Department to take action against Apple (if there are any legal grounds for them to do so.) However, according to NPD Group, Android is now beating the iPhone in new U.S. consumer sales, and Verizon has confirmed that an Android tablet is right around the corner. That's where Adobe should be focusing its attention, and it should be sending consistent messages, both externally and internally.

US Government considering antitrust action against Apple?

The New York Post reported this morning that the US Justice Department and Federal Trade Commission are deciding which agency should launch an antitrust investigation against Apple. The cause would be the now-infamous Section 3.3.1 of Apple's iPhone Developer Program License Agreement, which banned the use of any cross-platform development tools or programming languages other than those specified by Apple.

The charge against Apple would most likely be that the changes in its license are an illegal restraint of trade. Given that Apple isn't either the dominant supplier of smartphones (that's RIM) or the largest supplier of mobile phones (Apple isn't even in the top five), whichever agency goes after Apple will have to show that the company monopolizes something, and monopolizing its own platform probably won't fly in court.

My suspicion is that the argument will be that Apple has become so important to software developers that its actions have a disproportionate effect on the software industry, even if it doesn't have a conventional monopoly in any market. The goal of any investigation will most likely be to get Apple to open up its development ecosystem and allow alternate languages and cross-development platforms to be used. This investigation could also open the door on how Apple actually evaluates applications, which would be a "peek behind the curtain" that Apple would prefer we not see.

The timing of this leak, during the Gizmodo investigation and weeks before Apple's Worldwide Developers Conference, where the new iPhone is likely to be announced, may be intended by the Government to put pressure on the conpany to reel in its activities or face some potentially embarrassing announcements and disclosures. At the very least, it's likely to stop or slow down Steve Jobs' public missives.

TV Everywhere = restraint of trade?

I just finished reading BusinessWeek's article from a couple of weeks ago on TV Everywhere. It gives the history of TV Everywhere as essentially a deal between the two largest US cable operators, Comcast and Time Warner Cable, to control distribution of video content over the Internet by limiting its availability to existing cable subscribers only. It also documents the difficulties that alternate distributors such as Netflix, Boxee and Sezmi have had in striking deals for cable and movie studio content, and points out that Sezmi has actually had to pay more than the cable operators for some content, even though it still has miniscule market share. It wraps it up with a few quotes from content providers saying that they'd be crazy to do deals with alternate distributors for fear of angering their largest customers, the cable operators.

Anyone who knows anything about U.S. antitrust law would see a host of red flags in the first paragraph of this post. The two largest cable operators colluded to prevent competition from Internet content distributors. Brian Roberts, the head of Comcast, had to be dissuaded from trying to force the individual content providers to shut down their own distribution sites. Alternate distribution services are at a competitive disadvantage because they can't get most of the content available to cable operators and have to pay more than cable operators for the content that they do get. The content providers confirm that they're holding back their content from alternative distribution channels to avoid retaliation by the major cable operators. So we've got collusion, restraint of trade and price fixing.

Time Warner and Comcast don't get out of the collusion charge because they don't directly compete with each other, since they were working together to limit mutual competitors. The cable networks and movie studios are in it up to their ears, and Comcast is trying to buy control of NBC Universal, which will give them even more control over cable programming and, for the first time, motion pictures and over-the-air services as well.

If I were with the U.S. Department of Justice, Federal Trade Commission or one of the companies named in the article like Netflix, Boxee and Sezmi, I'd be salivating over the opportunities for criminal and civil antitrust action. TV Everywhere, initially envisioned as a technique for the cable companies to take over control of video distribution on the Internet, may end up being the "step too far" that ends the cable companies' monopoly over video content distribution to homes.