So: What’s Next for T-Mobile?

by Politic365 on December 29, 2011

The Obama Administration, in keeping with its pledge to vacate the “let it ride” attitude of the Bush Administration toward antitrust, successfully scared off AT&T’s attempt to acquire T-Mobile USA from its parent, Deutsche Telekom AG.  AT&T announced last week that it was withdrawing its bid for America’s fourth largest wireless carrier.

Both the U.S. Department of Justice and advocacy groups expressed much satisfaction with the Dallas-based carrier’s decision to quit its pursuit. AT&T has to ante up a significant dowry to Deutsche in the amount of $3 billion in cash and about $1 billion is spectrum for stepping away from the altar.

Wall Street was not surprised at the announcement. Morningstar’s Allan Nichols said, “We had already assumed the deal was dead at the time the U.S. Department of Justice challenged it over the summer and had adjusted our fair value estimates accordingly.”

In addition to expectations that the deal was all but lost, there is also the expectation that in terms of service coverage and possibly quality, T-Mobile USA is back to square one. Rene Obermann, chief executive officer of Deutsche Telekom, said as much in an article for CNBC. “In the long run, we are still confronted with spectrum constraints and we need to find a good way into LTE (long term evolution) technology and we will work on this,” he said.

Writing in The Wall Street Journal, Hester Plumridge noted that T-Mobile USA still faces the result of years of underinvestment by Deutsche Telekom, a declining number of subscribers, and a subscale network. Building a network that could compete with AT&T and Verizon may cost Deutsche Telekom approximately $10 billion. So much for the break-up fee.

While the Justice Department is chalking the withdrawal as a victory for consumers, the only probable winners in all this are the tower companies. In an interview with CNBC, Clayton Moran, analyst at Benchmark Company, saw the failure of the deal as a positive for tower companies such as SBA Communications and American Tower Company.

According to Mr. Moran, the acquisition would have improved efficiencies for AT&T. Without the additional towers that AT&T would have acquired from T-Mobile USA, AT&T will now have to construct additional towers in order to expand its coverage.

And T-Mobile? What will they do next? Mr. Obermann expects to take the $3 billion in cash, along with some spectrum, and make T-Mobile more competitive. It will take time for T-Mobile and AT&T to build out their networks, however. As more subscribers demand voice and data services, there is a chance that subscribers will face increasing prices as the current networks of both large national and smaller regional carriers become more congested.

Also possible is that the $3 billion in cash and that extra spectrum can go toward a T-Mobile makeover; a makeover that may make the company attractive enough to be sold in its entirety to another wireless carrier or cable company. It’s even possible that pieces of the company may be sold, but the possibility of a piecemeal sale may be unlikely given Deutsche’s desire to exit the U.S.

This article by Alton Drew originally appeared on Politic365.

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  • Loni North

    The demise of this merger was such a missed opportunity… the U.S. can’t afford this type of misstep again.

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