AT&T and T-Mobile: What's Behind the Deal?
For months, rumors have swirled that T-Mobile USA would either be shelved or put on the auction block, as parent company Deutsche Telekom dealt with the impact of both a slower economy at home in Germany as well as limited traction in the large but fragmented United States mobile phone market.
With the announcement this weekend that AT&T Wireless is acquiring T-Mobile USA in a $39 billion deal that places Deutsche Telekom as an 8% stakeholder in AT&T Wireless, a chapter of competitive GSM history in the U.S. market comes to a close.
Or does it? The common wisdom is that, once DT's shareholders approve the purchase price of $25 billion in cash and the remainder in AT&T stock, the landscape for mobile service providers will shift to AT&T as the dominant player with Verizon falling to second place.
Yet it's not hard to imagine that Verizon will attempt to block the merger in order to avoid de-throning. The tack, one suspects, would be anti-competitiveness, and it might work, as the AT&T name is still synonymous with the breakup of Ma Bell thirty years ago. Over time, that breakup has consolidated back into a singular mass that looks very much like the old AT&T.
The Federal Communications Commission (FCC) would need to approve the merger, as would the Federal Trade Commission and the Department of Justice, so AT&T has already begun pushing the story of bringing innovation in-house from a German company to a U.S. company.
"This merger makes T-Mobile USA, currently a German-owned U.S. telecom network, part of a U.S.-based company," AT&T said in a press release announcing the merger.
The FCC itself has noticed the re-concentration of subscribers under a few service providers, noting in a recent report that concentration has increased 32% in the past seven years, and almost 7% in 2009.
The iPhone's Golden Handcuffs
The innovation AT&T gains may be as critical to the online video space as the enlarged subscriber footprint: While Verizon and T-Mobile have been innovating their networks—Verizon moving into Long Term Evolution (LTE or 4G) and T-Mobile moving into HSDPA+ (3.5G)—AT&T has been tied to the golden handcuffs of the popular iPhone, which only recently has begun to support 3.5G and has yet to support a 4G network, despite AT&T's marketing of its own network as 4G.
As mentioned in last month's article about LTE, video delivery is the primary reason for HSDPA+ and LTE buildouts: Apple emphasizes video playback over 3.5G networks as a primary selling point, so the ability to stream HD content is critical to any mobile handset or tablet strategy.
AT&T's lack of a fully deployed LTE or HSDPA+ network means the company runs the risk of losing a smartphone market it helped to create. Even without the merger with T-Mobile, AT&T's announced intent to curtail unlimited data plans may have significant impact on the growth of video consumption on mobile devices. AT&T's stance could easily spread to the remaining two U.S. mobile carriers, if T-Mobile is eliminated from the picture, which would be a blow to Apple's stance of strongly espousing unlimited data plans on a global basis for its carrier partners.
The timing of the acquisition comes just before this week's CTIA show, being held in Orlando. The implications and viability of the merger will be on many attendees' minds, given the fact that AT&T's choosing T-Mobile will leave no other GSM-based carrier in the United States. The other question on many attendees minds will be the implication of the merger on data plans and the cost of delivering data-intensive content like video and audio streaming.
Humm Staying Mum?
Word is that T-Mobile CEO Philipp Humm won't be traveling to Orlando to participate in Tuesday's roundtable discussion with CEOs from the other three wireless service providers, though he's still on the schedule as of this writing. This leaves the door open for the other two companies—Sprint and Verizon—to publicly state their case without refutation from T-Mobile, bringing into question the commitment of T-Mobile to the US marketplace.
Sprint gets the first chance to make news headlines at the show, as the company's chief executive, Dan Hesse, is also chairman of CTIA. Hesse kicks off the keynote proceedings with 9 a.m. opening remarks on Tuesday, followed by FCC Chairman Julius Genachowski. Sprint has already lodged a formal complaint regarding the competition implications. Sprint's stock took a hit Monday as its shareholders debated with their pocketbooks whether Sprint would be scooped up next or be the odd man out.
For all the hubbub around wireless spectrum—which we will address in detail in another article about CTIA and the upcoming NAB—the fact is that AT&T needs to show Android and iOS developers that its role as an innovative carrier will continue with or without the T-Mobile merger.
If AT&T's mantle of innovator slips away, so shortly after its loss of exclusive iPhone distribution in the U.S., and if Verizon outpaces AT&T with its LTE deployment—as it has been doing so far—chances are high that the LTE iPhone will go first to Verizon and then to AT&T, a complete reversal of fortunes from the last several years of growth in online video consumption via the iPhone.
Finally, buying T-Mobile also puts Apple into a complicated relationship, as Deutsche Telekom has rights to resell the iPhone in Germany. While DT will gain additional benefit from sale of the iPhone in the U.S., it's also possible that Apple's displeasure with AT&T's lack of data plan pricing flexibility may be offset by DT's role as a minority shareholder in AT&T, tempering some of Apple's decisions that could have implications on both continents.
While AT&T needs spectrum, the DoJ's antitrust concerns could scuttle its plans.
The Mad Money host peppers the wireless companies' CEOs with questions about video quality and the next big thing.