AT&T’s acquisition of T-Mobile: Does everyone win?
March 21, 2011 - By Justin E. Gehrke
On Sunday, AT&T announced its acquisition of T-Mobile USA from Deutsche Telekom. While it is obviously seen as a win for AT&T it causes some to wonder if AT&T is poised to become the de facto king (or queen) of the U.S. mobile market.
The importance of the deal to AT&T’s future growth is implied in the $39 billion dollar price tag, $25 billion of which will be paid in cash. Other than the obvious market share they stand to gain, why buy T-Mobile? More importantly, will it represent a win or loss for T-Mobile and AT&T customers?
Spectrum Wars – AT&T wins
Back in June of 2010, GSL reported on AT&T’s $2.35 billion purchase of a portion of Verizon Wireless network. The deal was mandated by the FCC as part of Verizon’s purchase of Alltel. AT&T graciously stepped in and picked up around 1.16 million customers located primarily in rural areas.
Fast forward nine months, and you see AT&T picking up additional market share. As with the Verizon purchase, though, it’s likely that the increase in customers is less important to AT&T than the all-important wireless spectrum it will pick up as part of the deal.
In the previous article referenced above, GSL provides a basic explanation of spectrum management. To fully understand the potential benefit to AT&T, it’s worth your time to read it. Since the wireless spectrum isn’t getting any bigger, AT&T is essentially guaranteeing their ability to not only attract more customers, but also be able to provide them with actual mobile service. There is also the consideration that AT&T is still in the process of expanding its infrastructure to keep pace with competitors and ensure they are able to provide 4G coverage (or the equivalent). To this end, T-Mobile significant expansion in the recent past, which resulted in the company’s assertion that it had achieved 4G network status, essentially saves AT&T some time and effort, at least in certain geographic areas of the U.S.
Cash and Stock – Deutsche Telekom wins
In the $39 billion dollar deal, Deutsche Telekom stands to walk away with $25 billion in cash. While this would obviously be seen as a win for any company, up to $14 billion of the remaining balance will be paid for in AT&T stock. Even though AT&T can increase their cash payout to Deutsche Telekom by as much as $4.2 billion, Deutsche Telekom is guaranteed to receive a miminum 5% equity ownership in AT&T. This means that not only does Deutsche Telekom gain extra cash to channel toward its other companies and ventures, they also have a guaranteed source of quarterly profit, as long as AT&T continues to grow in the U.S.
Coverage and Devices – Customers (might) win
When it comes to AT&T, there are great divides in opinion. Some consumers have chosen companies like T-Mobile, with a smaller footprint in terms of coverage, based solely on the fact that they don’t like AT&T. Are there opinions based on coverage, pricing, contractual requirements, etc? The answer depends on whom you ask. T-Mobile customers who chose the company based on their unlimited data plans might not love the idea of being absorbed into a company that likes to limit data to 2GB per month. In all likelihood, though, AT&T will do as they have done in the past and allow existing customers of companies they have acquired to keep their calling and data plans and rates.
Of course there are some who have chosen T-Mobile simply because AT&T didn’t have decent coverage (or any at all) in their areas. It stands to reason that a fair share of existing T-Mobile customers who are in it for the coverage are probably excited at the thought that they may finally be able to get an iPhone or iPad that doesn’t require a jailbreak or an APN changer. Even those who already used an iPhone on T-Mobile were forced to use it at a reduced data speed, based on the difference in frequency.
Apple wins because…well…they always seem to win
Yes, I have no doubt you’re saying, “How did Apple get involved in this?” It’s true. They aren’t involved on paper. Apple does have a good chance of benefiting, though. AT&T’s acquisition of T-Mobile means, as mentioned above, more people who can potentially buy iPhones. Does the company really need it? If you’ve seen their quarterly and annual profit reports, you know that Apple is doing just fine. This doesn’t mean, though, that Jobs and company are averse to the idea of increasing their market share in the smartphone market.
It’s a done deal…or is it?
If you read all the way to the bottom of AT&T’s press release on the acquisition (see link below), you know that it’s just a planned deal right now. Before it can actually happens and money can change hands, the transaction must be approved by U.S. regulatory agencies. This is where acronyms like FCC and FTC come into play. In AT&T’s favor is the fact that U.S. Telecom unions have already thrown their backing behind the deal, which avoids any public relations problems sometimes generated by picketing union employees. If all goes well, AT&T and Deutsche Telekom will close the deal within 12 months.
For now, we can only speculate on potential wins and losses for all parties involved. The only certainty is that the landscape of the mobile industry both in and outside of the U.S. will continue to change, as demand grows for newer, faster smartphones and sufficient bandwidth to make them actually do something that’s considered smart.
Source: AT&T Press Release – AT&T to Acquire T-Mobile USA From Deutsche Telekom
