TIME technology

Discovery Channel Says No to Comcast Merger

The proposed merger, which could give the combined company control of up to 70% of certain high-speed broadband connections, has been widely criticized by the tech industry and consumer rights activists

After six months of simmering silence—punctuated by anonymous griping to regulators and reporters—big television content companies and programmers are beginning to speak out against Comcast’s $45.2 billion proposed merger with Time Warner Cable.

In a filing with the Federal Communications Commission last Thursday, Discovery Communications, which owns Discovery Channel, Animal Planet and TLC, wrote that the merger could create monopoly-like conditions in the TV space by giving the combined company unprecedented control over advertising, sports programming, broadband speeds, and what TV shows make it into American homes, at what price.

The merger, which would tie the biggest and second-biggest cable companies in the country, “could result in lower quality, less diverse programming, and fewer independent voices among programmers,” the statement said. Discovery is backed by Jon Malone, the billionaire former head of Liberty Media and Comcast CEO Brian Robert’s one-time mentor.

Silicon Valley tech firms, like Netflix, small regional cable companies, like RFD TV, and satellite TV distributors, like Dish, have already voiced their opposition to the merger, testifying before Congress on the subject since it was announced in February. But until last week, big TV content companies have remained silent on the issue.

While a Discovery Communications representative declined to explain the timing–why now?–industry analysts have suggested that a public statement from a behemoth like Discovery might prompt other large networks to pipe up in the last four to six months of the review. Opposition from large, influential companies, like Viacom, 21st Century Fox, Time Warner and Disney, could change the tenor at the FCC and the Justice Department, the two federal agencies that are in the process of reviewing the merger for anti-trust issues and consumer concerns. The agencies are widely expected to approve the deal as early as this winter.

The FCC has received roughly 75,000 complaints about the merger, mostly from the tech industry, consumer rights activists, and citizens concerned with dismal customer service experiences at both Comcast and Time Warner Cable.

One reason content producers and programmers have not said much thus far is likely because they rely heavily on payments from TV distributors—Comcast chief among them—for their bottom line. Last year, Comcast paid networks $9.1 billion in “retransmission fees,” a sum that makes up the majority of profits for even the nation’s largest programmers. Without those fees, many content producers’ business models would collapse, or they would be forced to join forces–Scripps and Discovery? Viacom and AMC?–to compete.

If the merger is approved, a new, even-larger Comcast will control 30% of the American TV market and dominate 19 out of 20 of the biggest cities in the country, giving it a much more powerful position at the negotiating table. Rivals fear that if Comcast chooses not to carry a network, or to relegate a channel to a cable tier that reaches fewer American homes, it could all but destroy a network’s ability to survive or receive adequate advertising.

Comcast, for its part, has said that its merger with Time Warner Cable would simply recalibrate what it describes as a grossly unequal balance of power in the TV marketplace. In April, Comcast’s man in Washington, David Cohen, said at a Senate Judiciary Committee hearing in April that programming costs have gone up 98% in the last decade because “programmers have more power at the negotiating table” than distributors.

The debate is underscored by concerns about Comcast’s overwhelming dominance in the high speed broadband space. At a time when more and more Americans are shifting from watching traditional cable to watching TV over the internet (Netflix, Roku, Apple TV!), they are becoming more dependent than ever before on the high speed broadband pipes that deliver the internet to their homes–and those pipes are largely owned by Comcast too.

If the merger is approved, Comcast could control up to 70% of American broadband internet connections fast enough to stream or record several high-definition TV shows at the same time, according to recent studies. (Comcast says that it will control only 30% of broadband connections, but its definition of “high speed broadband” includes DSL connections that are too slow to stream multiple HD videos.)

Comcast’s dominance in the TV distribution space could give it the power to demand that content producers and networks do not distribute their content online, either via an independent website or through an existing platform, like Netflix. Programmers and content producers will inevitably see their industry shaped inexorably by a Comcast-Time Warner Cable merger. Whether it’s in their interest to speak out now–or to hedge their bets, stay on the giants’ good side, and wait for the merger to be approved–remains to be seen.

TIME technology

FCC Chairman Says All the Right Things, But Critics Remain Suspicious

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FCC Chairman Tom Wheeler gives testimony before the Financial Services and General Government Subcommittee hearing on "Review of the President's FY2015 funding request and budget justification for the Federal Communications Commission (FCC)."on March 27, 2014 on Capitol Hill in Washington, D.C. Karen Bleier—AFP/Getty Images

America's lack of broadband competition is "intolerable," Wheeler said

Federal Communications Chairman Tom Wheeler gave an impassioned speech Thursday, saying it’s “intolerable” that 75% of Americans have no choice between Internet Service Providers offering fixed broadband at speeds fast enough for modern use. Wheeler also called for the government and industry to “do everything in our power” to increase competition among ISPs like Comcast and Verizon, and to create a robust public policy that protects a vibrant, dynamic, and open Internet.

On the surface, Wheeler’s speech hit all the right notes with tech entrepreneurs, open Internet advocates and consumer rights groups. But behind the scenes, it was met with a dose of cynicism.

Critics pointed out that Wheeler has previously sworn allegiance to popular concepts like “net neutrality,” the notion that ISPs must treat all web content equally, while simultaneously advancing federal rules that many tech entrepreneurs decry for betraying that concept. Advocates have submitted a record-breaking 1.3 million comments to the FCC in recent months over the issue, many of which pan Wheeler’s version of “net neutrality” rules.

Similarly, Wheeler’s fervent call for more competition–“competition, competition, competition!” he said repeatedly during his speech–in the broadband market was met with approval from most in the audience. But it seemed to some consumer advocates to be disingenuous in a climate where the FCC is widely expected approve of a massive planned merger between Comcast and Time Warner Cable in the next six months.

“The real proof will be in the agency’s actions and not just its speeches,” wrote advocacy group Free Press’ policy director, Matt Wood, in a prepared statement.

In one part of his speech that will likely draw support from many in the Internet advocacy community, Wheeler re-defined high speed broadband Internet as having download speeds of at least 25 megabits per second (mbps). The FCC’s official definition is still only 4mbps, which doesn’t make sense, Wheeler said, in a world where it takes 5mbps to download a single high-definition video, much less to access streaming apps for educational or healthcare purposes.

Quibbling over the definition of high speed broadband matters in this highly politicized space. Broadband service providers often claim at Congressional hearings and in legal filings that they have lots of competition from other ISPs, but they cite as examples rival companies that offer what most Americans would consider unacceptably slow service. For example, in the legal filing for its proposed merger with Time Warner Cable, Comcast claims that it’s engaged in “robust competition” with telecom and mobile phone companies, many of which offer DSL or other services with download speeds significantly slower than 25 mbps.

On this point, Wheeler was clear: “At 25mbps [download speeds], there is simply no competitive choice for most Americans,” he said, unequivocally.

Wheeler, who spoke at 1776’s start-up space in downtown Washington, D.C., spent a good portion of his speech laying out what he called his “Agenda for Broadband Competition.” It centers on not only encouraging competition between existing broadband service providers, but also creating new competition—a turn of phrase that seemed to suggest that the FCC may move more actively into citizen-supported municipal broadband.

“Where meaningful competition is not available, the commission will work to create it,” Wheeler said. He also cited recent petitions asking the FCC to review recent laws, most of which were underwritten by local cable and telecom companies, that make it illegal for cities to create their own broadband. Eliminating such local laws would allow municipalities, like Chattanooga, Tennessee, to build and maintain their own Internet networks, competing directly with incumbent telecom and cable companies–a highly controversial idea in this space.

Wheeler also pointed to the fact that in cities where Google Fiber has begun offering super-fast gigabit download speeds, local cable and telecom companies, which have balked in the past at the cost of investing in faster networks, have recently increased the speeds of their service. He added that while the majority of Americans have access to 100mbps download speeds, that’s just not enough.

“Just because Americans have access to next generation broadband doesn’t mean they have competitive choices.”

TIME China

A Smartphone Maker Called ‘Little Rice’ Has Big Plans

Xiaomi Samsung China Sales
Xiaomi CEO Lei Jun speaks during a product launch on May 15, 2014 in Beijing, China. ChinaFotoPress via Getty Images

For the first time in years, the biggest player in China's smartphone market is homegrown

“Little rice.” That’s the literal translation for Chinese electronics company Xiaomi, but its humble name hasn’t stopped it from conquering the Chinese smartphone market. And now it’s looking abroad, too.

Analysts say it’s precisely Xiaomi’s modesty that’s allowed it to dethrone Samsung and log the highest smartphone sales volume in the world’s biggest market this past quarter. A three-year-old firm known for its affordable prices and affable branding, Xiaomi shipped about 15 million units compared to Samsung’s 13.2 million in the second quarter this year, according to a report by Canalys.

“Samsung had been the leading vendor in China for the last two-and-a-half years, but [Xiaomi’s strong performance] comes in the context that Samsung has had an uncharacteristically weak performance,” Tom Shepherd, senior analyst at Canalys, told TIME, noting that the firm plans to adjust inventory after its 3G products had underwhelming sales. “We expect a sort of rally in terms of [Samsung’s third quarter] performance, but will that performance be sufficient to reestablish a leadership position over Xiaomi?”

But analysts are skeptical that Xiaomi will loosen its newfound grip on China’s smartphone market. Its sales overshadowed Apple’s a year ago, and the homegrown firm is on track for 60 million shipments in global smartphone sales this year, more than three times last year’s figure of 18.7 million, according to Linda Sui, senior analyst at Strategy Analytics. Estimates of the two manufacturers’ shipments in China suggest that “little rice” is reaping the harvest of its land:

Xiaomi Samsung Quarterly Shipments in China
Data from Canalys

“The two vendors are neck to neck,” Sui told TIME. “I think Samsung now feels much pain in low-tier and mid-tier markets in China. For low-tier and mid-tier markets, pricing is still the key factor in determining people’s purchasing behavior in China.”

Affordability has indeed been Xiaomi’s allure—Xiaomi’s most popular smartphones retail at half the price of most iPhones in China—but analysts believe the real cause of Xiaomi’s explosive growth is its localized and personalized features, the opposite of what’s made global brands like Samsung so successful. Unlike Samsung, Xiaomi has strategically sold 4G products while China Mobile pushes its 4G services; it has its own pre-installed Chinese app store, since Google Play is heavily censored; it boasts its user interface customization software unavailable on Samsung’s phones; and all phones arrive with pre-installed local business directories. With Xiaomi, “made in China” might not be so bad.

“We see that phrase evolving within China to the phrase ‘made for China,'” Jeff Orr, Senior Practice Director for Mobile Devices at ABI Research, told TIME. “‘Made in China’ is going to mean something, something people will take pride in within China. That’s going to be an increasing challenge for multinational brands like Samsung that are importing products.”

But Xiaomi’s secret to success is a double-edged sword: analysts say achieving that same degree of localization will be necessary if Xiaomi wants a future beyond its home country, which Sui said is “very well covered” by Xiaomi, as it has penetrated both rural areas and cities. On the other hand, only about 100,000 of Xiaomi’s global smartphone units, less than 1%, were shipped outside China during the second quarter, according to data from Canalys. Its recent launch of its Mi 3 model in India, though, is a big encouragement: Xiaomi has already scored 100,000 pre-orders for only 10,000 units. Analysts expect the firm’s hit list will include several emerging markets in the Asia-Pacific region and also in European countries like Russia, where global brands like Apple don’t have a strong presence.

There’s one place, though, where analysts say “little rice” won’t grow: America. While Xiaomi nabbed an American Android executive last year, prompting speculation over a possible U.S. entry, sustained controversy over Xiaomi’s intellectual property infringements on U.S. companies and the sheer saturation of the American smartphone market are casting doubt on Xiaomi’s future in the U.S.

TIME Telecom

Verizon: Slowing Data Speeds for Some Users Is Necessary

Verizon Defends Throttling Policy After FCC Letter
Pedestrians walk past a Verizon Wireless store in New York, U.S., on Friday, Jan. 17, 2014. Bloomberg via Getty Images

Verizon is defending itself after the FCC criticized its "throttling" policy

Verizon has defended its policy of slowing data speeds for some users after receiving stinging criticism from the Federal Communications Commission.

After receiving a letter from the FCC condemning the policy last week, the telecom company said slowing speeds—known as “throttling”—for heavy users of unlimited data plans during high traffic periods is necessary to ensure network quality, according to the Wall Street Journal.

The FCC’s letter followed Verizon’s July 25 announcement that under its “network optimization policy,” customers with 4G LTE devices on unlimited data plans who are in the top 5 percent of data users “may experience slower data speeds when using certain high bandwidth applications.”

“It is disturbing to me that Verizon Wireless would base its ‘network management’ on distinctions among its customers’ data plans, rather than on network architecture or technology,” wrote FCC chairman Tom Wheeler. “I know of no past Commission statement that would treat as ‘reasonable network management’ a decision to slow traffic to a user who has paid, after all, for ‘unlimited’ service.”

But Verizon, whose CEO Daniel Mead was “very surprised” to receive the FCC’s letter, was unapologetic in its reply to the FCC’s request that it explain its rationale behind throttling. Part of the FCC’s criticism suggested that throttling may be incentivizing customers to move to usage-based plans that would ultimately benefit Verizon. Verizon, however, disagrees.

“Unlike subscribers on usage-based plans, [heavy users on unlimited data plans] have no incentive not to do so during times of unusually high demand,” Kathleen Grillo, senior vice president of federal regulatory affairs at Verizon, said in the letter. “Rather than an effort to ‘enhance [our] revenue streams,’ our practice is a measured and fair step to ensure that this small group of customers do not disadvantage all others in the sharing of network resources.”

Verizon’s throttling policy dates back to 2011, when heavy data users’ speeds on the telecom’s 3G network were slowed to ensure equal access to network resources—a policy that’s “been widely accepted with little or no controversy,” Grillo wrote.

The practice of throttling has raised questions about what it means to subscribe to an “unlimited” data plan. AT&T also throttles speeds for some users grandfathered into its now-discontinued unlimited data plans, and in 2012, AT&T settled a lawsuit from a user upset about his slowed data speeds despite paying for uncapped data usage. Even former FCC Chairman Michael Powell has suggested limiting data speeds isn’t actually about network optimization, saying data caps on usage-based plans—increasingly common as wireless carriers slash unlimited plans—are instead about fairness among users and “how to fairly monetize a high fixed cost.”

TIME Telecom

Sprint Is Offering Super-Cheap Data Plans for Only Accessing Social Media

Sprint New Facebook Only Wireless Plan
A man shows the smartphone photo sharing application Instagram on an iPhone. Thomas Coex—AFP/Getty Images

In the latest example of a wireless carrier offering unique but controversial data plans

As wireless carriers launch services to make mobile Internet more affordable, Sprint is taking a more drastic approach with its new wireless plan—unlimited access to a few popular social media apps, and nothing else.

Offered under Sprint’s Virgin Mobile brand, the $12 monthly plan allows customers uncapped access to either Facebook, Twitter, Instagram or Pinterest, according to the Wall Street Journal. For $10 more, they’ll receive access to all four, and another $5 will grant unlimited streaming from a music app of their choice. The offers are part of a new set of customizable mobile data plans Sprint debuted Wednesday.

Sprint’s announcement arrives on the heels of other wireless carriers’ policies and services that waived certain apps’ data usage from monthly data limits. T-Mobile announced in June that it would stop counting data consumed by music streaming towards monthly caps, one of the perks of its “Un-Carrier” initiative to get away from some of the wireless industry’s long-held policies. Earlier this year, AT&T unveiled a “sponsored data” service where sponsors can entice subscribers to try out their apps while the related data use is billed to the sponsors. (Sprint isn’t being paid by the apps included in its plans, but Dow Draper, president of prepaid at Sprint, has said such a deal is “definitely possible.”)

While Sprint’s new plan seems favorable to users who go online only to tweet, post, upload or pin, it’s already incited criticism from net neutrality proponents who believe all traffic should be created equally. In other words, they argue that no Internet Service Provider should be allowed to enforce preferential treatment—faster speeds—for its users, while other users remain in congested, slower areas of the network. Sprint’s opt-in plan isn’t paid prioritization, but its nature as an exclusive, divided Internet access (like T-Mobile’s unlimited streaming, and also Comcast’s on-demand video games) have some advocates worrying it sets a potentially dangerous precedent during an ongoing debate over net neutrality. (The FCC’s Open Internet rules, however, have never applied to wireless carriers.)

Sprint’s new plan is available at only Walmart with a base offering of 20 minutes of talk time and 20 texts.

TIME Telecom

Streaming Music Won’t Count Against T-Mobile Data Plans

Wireless carrier T-Mobile will soon begin allowing customers to stream as much music as they want from services like Spotify and iTunes Radio. The company announced Wednesday that it will no longer count music streamed from select services towards customers’ monthly data usage limits.

The services currently included in the program are Pandora, iHeartRadio, iTunes Radio, Rhapsody, Slacker, Spotify and Milk Music. These options comprise about 85 percent of the music streaming traffic on T-Mobile’s network, the company said. Customers can vote via social media on other services they’d like to see included as well.

The move will allow avid music listeners to do considerably more with their monthly data allotment. A person that streams music for 50 minutes a day uses about 1.5 GB of data per month just for that task, according to T-Mobile’s own data calculator. If unchecked, such use can lead to huge overage charges on competing carriers’ networks or throttled speeds on T-Mobile (the carrier eliminated overage charges earlier this year in favor of slowing down service for people who use more than their allotted data).

The new feature has similarities to AT&T’s Sponsored Data plan, which alllows companies to pay AT&T to let customers use apps or websites without eating into their monthly data allotment. Some have said that these concepts violate the ethos of net neutrality, which discourages companies from granting preferential treatment in the way they deliver certain types of data across the Internet — though net neutrality rules have not previously applied to mobile Internet use.

Unlike AT&T’s Sponsored Data program, though, T-Mobile will collect no fees from the streaming services that are granted unlimited streaming.

In addition to lifting data caps on music streaming, T-Mobile also announced a new streaming service of its own, called unRadio. The new, on-demand service, made in partnership with Rhapsody, has a catalog of 20 million songs and no ads. It will be free for T-Mobile subscribers with an unlimited data plan and $4 per month for subscribers with more limited plans.

The new programs are the latest steps in T-Mobile’s “Un-Carrier” initiative, which has introduced several disruptive concepts to the wireless industry, such as the elimination of two-year contracts and international data charges. The cost-cutting measures are making T-Mobile bleed money, but they also helped the carrier gain more new subscribers in the first quarter than AT&T, Verizon and Sprint combined.

TIME Shopping

Senior Citizens Are, Like, Totally Into Shopping and Gossiping on the Phone

Regional Economy In Coastal Town Ahead Of Second Quarter GDP Report
Elderly people sit with their shopping bags as they wait for transportation at a bus stop in Hastings, U.K., on Tuesday, July 23, 2013. Chris Ratcliffe—Bloomberg/Getty Images

Survey finds they're always hanging around the mall, bragging about their grandkids

Most adults think they’ve outgrown the days of endless hang outs at the mall and marathon chats over the phone. In fact, they haven’t quite grown into them.

A Bureau of Labor Statistics annual survey of how Americans spend their time, released Wednesday, reveals that the pasttimes typically associated with adolescence, shopping and gabbing, tend to peak in the golden years.

Calling, texting, e-mailing and snail mailing consumes roughly 12 minutes of an average teenager’s day. If that figure seems low, it’s partly because the survey only counts the moments when gabbing is a “primary activity,” outside of work and school for instance. It appears to be a primary activity of the golden years, however, steadily climbing to nearly 16 minutes a day.

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Source: Bureau of Labor Statistics

Shopping tends to consume more and more waking minutes of Americans’ lives as they age, beginning at 30 minutes a day in adolescence and steadily climbing to a peak of 52 minutes for Americans 75 years and older.

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Source: Bureau of Labor Statistics

 

TIME Internet

Why Netflix May Be in Serious Trouble

AFP/Getty Images

FCC chairman Tom Wheeler says his staff is “collecting information, not regulating” in debate over slow streaming speeds

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

The FCC has heard your concerns over the weeks-long squabble between Netflix and Verizon regarding slow Internet streaming speeds and the FCC is . . . looking into it.

Federal Communications Commission chairman Tom Wheeler issued a statement Friday afternoon to say his staff is “looking under the hood” to determine who, if anyone, is at fault when it comes to poor Internet service and whether or not Internet service providers (ISPs) are purposefully interfering with streaming speed in order to strong-arm content providers like Netflix and Hulu into paying more for faster service, as Netflix has claimed.

Wheeler says the FCC’s goal is “protecting Internet consumers,” some of whom have contacted him directly with their concerns as the dispute between Verizon and Comcast, and Netflix has played out in the public sphere. Wheeler referred specifically to one consumer, whom he identifies only as “George,” who contacted the FCC chairman with a plea to get to the bottom of the Netflix-Verizon dispute.

For the rest of the story, go to Fortune.com.

TIME mergers

AT&T’s $50 Billion DirecTV Buy Is Risky, Probably Not Great for You

The telecom giant will pay $48.5 billion in stock and cash as it looks to keep up with rival Comcast, but it's a risky deal that may not benefit consumers

I’m as guilty as anyone: Readers of business news hunger for big numbers. The bigger, the better. On that front, the $48.5 billion that AT&T said Sunday it will pay to buy DirecTV did not disappoint. Eat your heart out, Mark Zuckerberg.

In its announcement of the deal, AT&T threw out even more mega numbers. Toss in DirecTV’s net debt and the deal’s value rises to $67.1 billion. The combined company will have 26 million customers in the US and 18 million in the growing market of Latin America. AT&T even said it expects “cost synergies to exceed $1.6 billion on an annual run rate basis by year three”—whatever that means, but it has a ten-digit number in it, so it sounds impressive.

But there’s something about AT&T’s big numbers that grow stale quickly. The problem with big spending is, if you don’t put it toward something worthwhile, it’s just a waste. Time’s Sam Gustin noted on Twitter that the sum AT&T is spending on DirecTV could deploy a hell of a lot of gigabit-fiber service to homes that want it. Instead, it’s going to buy one more aging incumbent in the fast-changing TV market.

So once the transitory buzz of the large numbers ebbs, the strategy behind the deal will start to be scrutinized a bit more. And so far, the strategy seems to be: Well, Comcast has gotten big, so AT&T needs to get bigger too. This isn’t AT&T’s only recent big-ticket bid. In 2011, the company tried to buy T-Mobile USA from Deutsche Telekom for $39 billion, but that deal fell through after the Justice Department intervened.

Why is AT&T so keen to buy its way into growth? Because no matter how much blood the company tries to squeeze from its customers, the stock can’t break out of the flatline it’s been in for a while. As this graph shows, AT&T’s stock has risen less than 10% in the past two years. The S&P 500, during the same period, has risen more than four times as much.

Screen Shot 2014-05-18 at 7.20.45 PM

Some people have taken a look at the strategy behind the DirecTV purchase and not been kind in their conclusions. When rumors surfaced last week of a possible acquisition, analyst Craig Moffett suggested that the acquisition could be a distraction from an inevitable decline in AT&T’s growth. “When DirecTV begins to shrink, then the price paid will no longer matter,” Moffett wrote. “It will merely be another liability that AT&T will need to offset by growth somewhere else.”

Aging companies often make big acquisitions when facing a decline in their own businesses. In the best case scenario, the acquired company is snapped up at a discount and revives overall growth for years to come. More commonly, the big buyouts are merely attempts to buy time. Integrating incompatible operations for a couple of years, and providing excuses for large-scale layoffs. The smoke and mirrors works only for so long. Then another expensive deal is required to keep the ruse going.

The DirecTV deal is looking like it will fall into the latter camp–an expensive gambit that may at best offer growth and cost-savings in the short-term. Pay-TV has an uncertain future in an era where over-the-top offerings like Netflix and video consumption on mobile devices are seeing much stronger growth. DirecTV’s stock has quadrupled in the past five years, but there’s little reason to think growth will continue at anything close to that rate.

Moffett, who was a top-ranked analyst at Sanford C Bernstein & Co. before setting up his own research firm, put it more severely. “Like skid row junkies in the final wretched tremens of downward spiral, telecom/cable/satellite investors now appear to need a deal fix almost daily to stave off the messy crisis of incontinence that comes with the inevitable withdrawal.”

Other analysts speculated about AT&T’s motives for the deal, but few of them shared the sunny interpretations of the acquirer. The timing, coming after Comcast’s plans to buy Time Warner Cable, could be an attempt to piggyback on another telecom deal, one likely to win regulator approval. Or maybe Comcast sparked a merger mania in the telecom industry, with DirecTV the first to be snapped up. Sprint may be prompted to buy T-Mobile. Dish Network could also be in play soon.

In other words, no matter how you slice it, this deal has little to do with helping the consumer. Yet in announcing the deal, AT&T referred to the consumers who are its customers (19 times) nearly twice as often as it did its shareholders (10 times).

So far, the consensus is that DirecTV is unlikely to draw the regulatory criticism that T-Mobile did for AT&T. But AT&T isn’t taking any chances. The company took a $4 billion writedown after the T-Mobile deal fell through, most of it related to breakup fees. AT&T made clear today it wouldn’t pay a fee to DirecTV should regulators foil the deal this time.

That’s good for AT&T, but it adds an air of desperation to DirecTV. Another sign DirecTV wanted to sell quickly: Rumors of the deal last week put the price at $100 a share, but the actual deal is only $95 a share. DirecTV’s stock only rose as high as $86.90 on the $100-per-share rumor, reflecting the Street’s skepticism on the price. Some of that skepticism, it seems, was warranted.

For consumers, the bigger question is, when will these telecom mega-mergers end? Benefits from mergers are usually passed on to shareholders in the form of share repurchases or higher dividends. They rarely benefit customers—in fact, reduced competition in telecom has historically meant higher fees.

That’s why consumers should be wary of these big-ticket mergers. Don’t be too dazzled by the big, flashing numbers of the headlines. The more and the merrier the mergers grow, the more the consumer becomes an afterthought.

TIME Telecom

T-Mobile’s Renegade CEO Is Crushing His Rivals

T-Mobile Holds Announcement Event In New York
T-Mobile C.E.O. John Legere Steve Sands—WireImage/Getty Images

Wireless industry had better watch out

Being a renegade can be a lot of fun—but it isn’t cheap. That was the message of T-Mobile’s recent quarterly earnings report. The company, which bills itself as the “un-carrier” for policies which run counter to industry habits, spent the last year lobbing grenades at AT&T and Verizon Wireless while CEO John Legere gleefully badmouthed the pair as duopolist dorks whose days of easy money were over.

He’s gone after their business like a starving man in search of a meal: T-Mobile added 4.4 million net customers last year. Compare that with 2012, when the company lost customers. “2013 was a transformational year for us, as we turned a declining business into a growth one,” crowed Legere.

How did he get all those new customers? He paid for them. In its last quarter, T-Mobile’s revenues rose 39% to $6.83 billion while generating a loss of $20 million. The losses come from the fact that T-Mobile is offering to pick up the tab when consumers break their service contracts with competitors. The company also reported that its ARPU—average revenue per unit, a key industry metric—declined by 2.9%. Normally that would be an alarming figure. But it’s consistent with the fact that T-Mobile customers are switching to the everyday low price plan that T-Mobile has used to break the hold of the bundled services approach of AT&T and Verizon. That strategy is hardly new but it can be effective: attract more customers at a lower price and live off the higher volume.

So far the T-Mob is for real. Any company can buy customers from a rival by lowering the price. But for the most part, you’re just renting them until the same rivals match or beat your price and then the new customers go away. That doesn’t seem to be the case here. The carrier’s “churn,” meaning the number of customers it lost, dropped to 1.7% from 2.5%. The company is also reporting that it is getting customers with higher credit ratings, which usually translates to lower losses from bad accounts. “Better customers are coming to T-Mobile and they are staying longer,” says Legere.

The T-Mob has broken the bonds that keep consumers tied to their phone or cable carriers. Those are known as switching costs. And in the phone industry, the switching cost isn’t just money, but it also be the pain of getting the whole family out if you’re on a family plan, for instance. T-Mob has made the switch painless—but it is yet to make it profitable.

Legere has no plans to ease up and if T-Mobile continues to rack up new customers at its current rate the profits will eventually roll in. The company expects to sign 2-to-3 million net new customers to service contracts this year—meaning that it expects to snatch them away from competitors since nearly everyone who wants a phone has one. If you are Verizon, and just floated a $49 billion bond offering to complete the $130 billion buyout of wireless partner Vodofone, the last thing you need is Legere short-circuiting your pricing structure. If you are a consumer, the cellphone industry has finally become a fun place to be.

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