The Cingular/AT&T Wireless Merger, Wireline-Affiliated Wireless Carriers, and Intermodal Competition in Telecommunications

The merger of Cingular and AT&T Wireless created the single largest national-footprint wireless carrier within the U.S. Two Regional Bell Operating Companies (RBOCs), SBC and BellSouth, wholly own and control the merged entity. In addition, the second-largest wireless firm post-merger, Verizon Wireless, is also an affiliate of another RBOC. Evidence raised in the public record indicates that the RBOCs were seeking to mitigate the migration of voice traffic from their wireline networks to wireless ones, including the wireless networks of their own affiliates. As such, to the extent that wireless telephony is a substitute for wireline service the removal of AT&T Wireless from the wireless market may correspond to the loss of a major intermodal competitor to wireline telephony. Using pre-merger data from cellular market areas (CMAs) in the U.S., this paper tests three hypotheses relating to wireline-wireless competition: (1) that in not having a wireline affiliation pre-merger, AT&T Wireless designed its wireless plans to act as an intermodal competitor in all markets, (2) that Cingular and Verizon wireless designed their plans to mitigate the extent of wireline to wireless substitution, and (3) that SBC/BellSouth and Verizon attempted to prevent their wireless affiliates from serving as intermodal competitors in each other’s wireline region. The results suggest that AT&T Wireless may have served as an intermodal competitor prior to the merger, and possibly Cingular as well (although to a far lesser extent within its parents’ wireline region). On the other hand, Cingular may have been designing its wireless offerings to serve as a complement to its parents’ wireline services in order to mitigate the extent of wireless substitution. Verizon Wireless may also have designed its plans for the purpose of retaining its parent’s wireline business but, unlike Cingular, by attempting to make its wireless offerings appear as a less attractive substitute for wireline service. Specifically, it is estimated that the average plan offered by Verizon Wireless to its parent’s wireline subscribers contained approximately 414 fewer minutes relative to plans offered elsewhere. Finally, it is posited that the future urban telecommunications market may be defined in terms of broad bundles of usage-integrated telecommunications services provisioned through various RBOC-Cable duopolies.