AT&T Acquisition of T-Mobile has Huge Impact on U.S. Telecom Industry!

While rumors were swirling around all weekend, it’s now official: AT&T to Acquire T-Mobile USA from Deutsche Telekom.

With subscriber complaints multiplying about AT&T’s inadequate mobile broadband infrastructure, the company was likely pressured into this deal as a quick fix. Randall Stephenson, AT&T Chairman and CEO said, “This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future. It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people. Mobile broadband networks drive economic opportunity everywhere, and they enable the expanding high-tech ecosystem that includes device makers, cloud and content providers, app developers, customers, and more. During the past few years, America’s high-tech industry has delivered innovation at unprecedented speed, and this combination will accelerate its continued growth.”

According to the presss release, AT&T will now commit to a significant expansion of LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns. This helps achieve the Federal Communications Commission (FCC) and President Obama’s goals to connect “every part of America to the digital age.”

Yet, T-Mobile USA does not have a clear path to delivering LTE. Therefore, we think that AT&T plans on using T-Mobile’s AWS spectrum to complement its own 700MHz licenses as it evolves its mobile data network to LTE. Note that MetroPCS already has a live LTE network operating in the AWS band, so there’s precedent for it.

AT&T stated that its mobile data traffic grew 8,000 percent over the past four years, with the expectation that it will increase by another order of magnitude between 2010 and 2015. With the addition of the T-Mobile spectrum and cell infrastructure, AT&T will be in much better position to support the increasing number of high-demand users and mobile devices (especially smart phones and media tablets).

Implications of this deal

Deutsche Telekom will be getting $25 billion in cash and $14 billion in stock, giving it an 8 percent stake in AT&T. To the best of our knowledge, this will be the only foreign ownership of AT&T (Note that UK based Vodafone owns about 45% of Verizon Wireless). We wonder if that will effect U.S. government use of the “new AT&T” wireless network for its mobile workers.

More importantly, with less competition (only 3 large wireless carriers left in the U.S.) mobile data plans will likely become more expensive.

Sprint will be a big loser if this deal goes through, as it was engaged in merger talks with T-Mobile. Sprint was also hoping that T-Mobile would invest in Clearwire to help the latter build out its Mobile WiMAX network. There was also talk of T-Mobile being a MVNO reselling CLEAR 4G (Mobile WiMAX). “This will certainly make Sprint’s life more difficult,” said Roger Entner, a consultant with Recon Analytics. Sprint may need to turn to an acquirer of its own, although potential buyers may be limited. Comcast was rumored to be interested but a knowledgable source says that Comcast isn’t interested in getting into the wireless business (other than being a MVNO).

In addition, LTE upstart provider LightSquared was believed to have had repeated talks with T-Mobile about being a national roaming partner and potential investor/MVNO. None of that is likely to happen now that T-Mobile will be part of AT&T.

If this acquisition is approved by U.S. regulatory bodies (FCC and the Department of Justice), it will reinforce the risks of the market becoming a virtual duopoly (AT&T and VZW), which is contrary to the FCC’s aim of increasing competition in the US mobile broadband market. Since it will be years before LTE is ubiquitous amongst all U.S. wirless carriers, 3G will be the dominant network technology for quite a while. As VZW and Sprint use EVDO/CDMA for 3G, consumers will have only one choice in most markets when it comes to HSPA/GSM based 3G mobile data services. So this deal will hardly be a bonanza for U.S. mobile subscribers.

0 thoughts on “AT&T Acquisition of T-Mobile has Huge Impact on U.S. Telecom Industry!

  1. Thanks Alan for writing such a cogent analysis. The first thought I had was that I better lock-in my T-Mobile contract now, as the price will be going up.

    It will be interesting to see how this impacts the rural areas, as many telcos have partnered with T-Mobile (for instance, iWireless in Iowa). How will the merger impact them? Will AT&T support potentially competing sales channels in the same geographic region?

    Perhaps there is an opportunity with MetroPCS to increase their coverage by working with the rural owners of AWS spectrum. Maybe it will also drive Sprint to find partners. Maybe this will push Sprint back into the arms of the MSOs (The acquisition of their original PCS spectrum in the mid 1990s was part of a partnership that included MSOs).

  2. Excellent article with very keen analysis! 2 key points:

    -If the FCC approves the deal, they will be seen as hypocrites regarding their public position on mobile broadband competition.

    -With T-Mobile no longer a viable partner for Sprint or Clearwire, what will become of those wireless carriers?

  3. About 2 years ago, Deutsche Telekom (DT) was rumored to be in talks to buy Sprint. Sources claimed the reason it didn’t happen was US government opposition to a German company owning the number 3 U.S. wirless service provider.

    But now it’s evidently OK for AT&T to acquire T-Mobile with parent company DT owning upwards of 8% of AT&T? Not to mention the negative impact on wireless/ mobile broadband competition! Where are the anti-trust regulators on this new deal?

  4. Lots of good insights in this well written article. The deal seems to be terrible for mobile broadband consumers and the many telecom workers who will lose their jobs as a result of this acquisition/ wireless industry consolidation.

    1. For sure, there will be many layoffs at AT&T/T-Mobile due to consolidation. But there will also be layoffs at telecom equipment/ software companies that supplied T-Mobile but won’t be needed once T-Mobile becomes part of AT&T.

  5. With telco + network equipment company consolidation/ bankruptcy, the U.S. telecom infrastructure ecosystem has been collapsing for years. This acquisition will accelerate that trend and deepen the pain for telecom professionals.

    As was pointed out in the article % comments, it will also be bad for U.S. mobile subscribers who will likely see price increases in their data plans

  6. Say no to AT&T’s mobile monopoly
    By John Gapper

    “If approved by US regulators, (the deal) will eliminate its major GSM competitor in the US and reinforce its place alongside Verizon as a dominant US mobile provider. Bernstein Research refers to the pair as “already a duopoly”.

    The deal should be blocked by US regulators and the Department of Justice. It is not pique that makes me say this. Unless they are stopped, Verizon and AT&T are on their way to replicating in mobile the power they exert in fixed-line telephony and broadband – lack of competition means most consumers can only choose between one phone company and one cable company.

    In spite of the clear antitrust problem – AT&T already has 96m subscribers and, with Verizon, controls 80 per cent of the industry’s earnings before interest and depreciation – it is sure enough that it will clear regulatory hurdles to agree to a $3bn break-up fee if it fails.”

  7. Pyramid Research:
    If the AT&T/T-Mobile deal goes through, smaller U.S. telcos – and maybe consumers – stand to gain from AT&T’s acquisition of T-Mobile, according to a new research note from Pyramid Research.

    This acquisition potentially could harm consumers in markets where choices for mobile service providers become too limited, especially when considering the two providers’ market positions, with T-Mobile as a low-cost service and AT&T as a premium player, notes Emily Smith, Analyst at Pyramid. “Not only will the FCC have to examine regional markets to see if the merged company would create too little competition in certain areas, but they will have to take into consideration that T-Mobile subscribers pay on average 6.4 percent less than AT&T subscribers and are more heavily weighted toward prepaid plans,” she says. “MetroPCS, Leap Wireless, Boost Mobile and MVNOs like TracFone could stand to gain many of T-Mobile’s former subscribers over the next several years as T-Mobile is phased out.”

    T-Mobile subscribers pay on average 6.4% less than AT&T subscribers and are more heavily weighted towards prepaid plans. If they are all migrated to AT&T plans, then mobile services could become less affordable to many consumers.

    Pyramind notes that over the past decade the US mobile market has grown more concentrated, as was the case with Verizon’s acquisition of Alltel in 2009. And so far at least, greater market concentration has not led to higher mobile tariffs. In fact, it’s been just the opposite: Mobile tariffs have declined in nominal dollars for most of the past ten years, despite the increased spend on mobile data. Even if the AT&T deal goes through with no concessions required from the FCC and no subscriber loss, both of which seem doubtful, market concentration in the US will be equal to market concentration in Western Europe, where the top two operators control 75% of the mobile market on average.

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