Five Forces Article - T-Mobile Turns an Industry on its Ear Essay

Submitted By winte409
Words: 1555
Pages: 7

Five Forces Article Assignment

T-Mobile Turns an Industry on Its Ear

The article I found relating to Porter’s Five Forces was about T-Mobile and how their rejected merger with AT&T has caused them to go against many of the previously accepted practices of the mobile carrier industry. This started in 2011 when the Federal Communications Commission and the Justice Department blocked AT&T’s proposed $39 billion acquisition of T-Mobile. After the deal was called off, AT&T owed T-Mobile a breakup fee worth $3 billion in cash and $1 billion in rights to wireless spectrum which has allowed to T-Mobile to expand their service to better compete with the three other major carriers. Since the failed merger, T-Mobile has become an agitator in the industry and has said they want to eliminate every pain point for consumers in the industry. One of the major issues in the mobile carrier industry is how much the four major carries (Verizon, AT&T, Sprint, and T-Mobile) have started to dominate the market, making it hard for smaller companies to penetrate the industry. Consumers have a strong brand loyalty towards the major carriers because of how much better their coverage and service compare to smaller firms in the industry. Smaller firms cannot expect to have the capital to match the network size of any of the four major carriers which can be a major deterrent for customers switching to their carrier. These four major carriers hold an absolute cost advantage over smaller firms attempting to enter the market because of the many years they have been in the industry and resources they have been able to invest into their networks and services. There are also significant switching costs for customers looking to switch carriers, as all of the carriers charge early termination fees when customers attempt to leave their current carrier and switch to a competitor. One of the ways T-Mobile has attempted to change the industry is by eliminating these switching costs for customers by offering to pay any early termination fees the customer’s current carrier is charging them to leave their contract to switch to T-Mobile. Along with paying early termination fees of other carriers, they have eliminated any early termination fee for its own customers, meaning if they find a better deal than the one they have with T-Mobile, they are free to cancel their plan with them without penalty. All of these changes by T-Mobile has helped them become more competitive in the industry again and to take back some of the market share it had lost over the years. The main reason for the Federal Communications Commission and the Justice Department blocking the merger between AT&T and T-Mobile was because they feared that shrinking the market to three major carrier instead of four would give the carriers and incentive to increase prices. All of the power in the industry already lies with the four major carriers, and by taking one of these out of the market, regulators were wary of giving more pricing power to such a small number of companies. The major factor of this is because for customers, there are almost no comparable substitutes they can switch to. The service the four major carriers offer is far and above anything else in the market which carriers know and have allowed them to control pricing and extra charges in the industry. Mobile phone service has also become very vital to consumers, being able to connect with others at any time with the use of a cell phone has become almost a necessity for people now. This has only increased the power suppliers have over their customers. With T-Mobile being allowed to continue to operate and by giving them additional money to catch up to the industry, they have taken some of the power away from the major suppliers. The mobile carrier industry greatly benefits from the lack of substitutes. The service that is provided by the major carriers has yet to be matched by similar industries. Home phone providers still focus…