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There's been a lot of talk since AT&T

announced a proposed merger with T-Mobile Sunday about how the new giant company would be bad news for consumers. AT&T service might improve with increased bandwidth, but less competition in an already uncompetitive marketplace—combined with the removal of T-Mobile as the current bargain cellular option—has led consumer advocates and many in the tech press to predict an outcome of higher prices and reduced choice for customers.

In general, I agree. AT&T can swear that the merger will lead to a better network and a greater variety of services, but the telco business is all about a little term called ARPU, or average revenue per user. The disappearance of T-Mobile as an independent provider allows the remaining major carriers (AT&T, Verizon and Sprint) to slowly but surely increase their rates, and, consequently, squeeze a little more, umm, ARPU out of their customers.

But forget the concerns of we lowly consumers for a moment. I think this merger actually might end up a disaster for AT&T.

Reason No. 1: AT&T Doesn't Automatically Own T-Mobile's Customers

The merger will make the combined AT&T-Mo company the nation's largest cellular provider—in the short term. AT&T currently has 95.5 million subscribers and T-Mobile has 33.7 million; the combined 129 million would put them well ahead of Verizon, which has around 101 million. But the wireless business is built on the back of two-year contracts, and this is bound to work against AT&T in the long term. For the past four years, AT&T could use its exclusive agreement with Apple to sell the iPhone to build its consumer base. Not coincidentally, during that time AT&T also built up a reputation for bad service, dropped calls and network overload. Now that AT&T has no exclusivity on the iPhone, it is well behind Verizon and Sprint in 4G network rollout, and it is not offering discount service as T-Mobile is.

Imagine you are a T-Mobile customer, and you've just heard that your wireless provider is going to be gobbled up by AT&T. You may not be under contract—many T-Mobile subscribers have prepaid no-contract plans. But if you are, when that contract expires, you're free to shop the open market. If all AT&T can offer is higher prices and a legacy of terrible service, why re-sign with them?

Furthermore, because of the regulatory scrutiny the merger invites, the deal is by no means guaranteed. And if it indeed gets rejected, AT&T is on the hook for a $3 billion breakup fee to T-Mobile. If the deal does gain approval, it would take at least a year before the companies could start operating as a single business. A whole lot of contracts expire in a year, and during that time T-Mobile will have little to offer new customers but even steeper discounts and a whole lot of uncertainty. By the time the deal closes, AT&T would take over what's left of T-Mobile's existing, less-profitable contracts, and would have the unenviable task of convincing discount shoppers to re-up on a network that is scrambling to establish a reputation for quality. Before long, AT&T could find itself saddled with the infrastructure costs of the nation's largest wireless service while hemorrhaging enough subscribers to fall back into second place.

Reason 2: The Myth of Scale

But hold on a second. Wouldn't the combination of T-Mobile and AT&T's networks allow the new mega-company to save considerable costs? The company would have more bandwidth to play with, and by eliminating redundancies and overlapping coverage, it could become more efficient thanks to economies of scale. Plus, the new AT&T-Mo would have greater bargaining power with device makers and equipment suppliers.

AT&T will probably use many redundant T-Mobile towers to roll out its 4G LTE network, but if it does discard or lease some of its excess towers and equipment, that actually creates a perfect opportunity for small, regional wireless players such as MetroPCS or Leap. These smaller companies—or even Sprint, the third-place national provider by customer volume—will look like good takeover targets in a post AT&T-Mo world, so maybe more consolidation will happen. But there's another possibility: Fewer players in the wireless market will leave plenty of excess tower and equipment capacity for small companies to buy up at a discount and expand their footprint. So AT&T-Mo might need to sell off company assets to new, lower-cost competitors that are in a perfect position to siphon off T-Mobile's price-conscious customers.

Reason 3: You Can't Bully Apple

If the iPhone has taught the wireless industry anything, it's that the manufacturer of a hot device brings customers to a network, not the other way around. AT&T would have to buy up every last competitor before it could strong-arm companies like Apple into discounting their devices (in which case, I imagine Apple would simply start its own cellular company. If anyone has the money to do such a thing, Apple does).

I could definitely be wrong on this one. AT&T has had success with mergers before (ever since the government broke up the original AT&T in 1982, the brand has been a fascinating experiment in the reconsolidation of the regional Bells). But the wireless industry has a few cautionary tales as well. Just ask Sprint, which is still reeling from its boneheaded acquisition of Nextel in 2005. AT&T may learn the hard way that buying your way to No. 1 is not necessarily good business.

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