Remember AT&T’s (NYSE: T) proposed $39 billion acquisition of T-Mobile USA?
Done. Over. Finished.
On Monday, AT&T decided to drop its bid.
Surprised? You shouldn’t be.
If you’ve been reading Wall Street Daily for a while, you know that we’ve been fairly critical of the move since the beginning. Mostly because removing a wireless carrier that offers competitively priced plans and a ton of freedom could never be good for consumers.
That’s not the only reason why the deal imploded, though.
Here’s a quick rundown of both sides of the argument – and who stands to benefit most…
Talk About Lipstick on a Pig
AT&T justified its proposed acquisition of T-Mobile with a few reasons…
- It claimed that the combined broadband infrastructure would help ease the strain on mobile broadband networks.
- The merger would boost its capacity by 25% to 45%, giving customers a better experience and reducing costs at the same time. Considering AT&T’s less-than-stellar customer satisfaction due to issues with dropped calls and sluggish data speeds in high traffic areas, that makes sense.
- AT&T also claimed that the move would create 5,000 jobs by bringing call-center positions to the United States from other countries.
Sounds great in theory. But government regulators weren’t buying it…
Regulators to AT&T: Thumbs Down
To say AT&T faced an uphill battle is quite an understatement.
From the moment it announced the deal, the company received a fierce backlash from politicians, competitors and public interest groups.
But it’s the negative attention from the Department of Justice (DoJ) and Federal Communications Commission (FCC) that really caused a stir.
The DoJ filed an anti-trust lawsuit against AT&T in August. The lawsuit stated that combining the second- and fourth-largest mobile carriers would “substantially lessen competition,” while increasing prices and decreasing product choices for consumers.
You don’t need to be a genius to figure that out.
And as for AT&T’s claim that the combined networks would help build its network capacity? The DoJ didn’t buy that, either. Because “AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.”
Not a good sign. But it gets worse.
While reviewing AT&T’s application for the merger, the FCC compiled a lengthy report that brought some of the dirty details behind the company’s plan to light.
Naturally, AT&T didn’t like the sound of that. It tried to sidestep the FCC by withdrawing its application altogether, hoping to get the deal approved elsewhere.
But the FCC decided to share its findings anyway.
In short, the report not only backed the DoJ’s claims that the move would harm competition, it also disputed AT&T’s claims that the merger would create jobs: “The staff finds the Applicants’ assertions that the transaction would create jobs in the United States to be inconsistent with AT&T’s internal analyses and record statements concerning cost reductions from the merger.”
Ouch. It couldn’t get much uglier than that. As TechCrunch’s Jordon Crook says, “Sentence by sentence, the FCC has whittled AT&T’s argument down to a toothpick.”
So it’s not shocking that AT&T decided to drop its merger plans entirely.
But AT&T’s failed plan is great news for the other players involved. And it’s not who you might think…
An Unlikely Winner
Most analysts think Sprint-Nextel (NYSE: S) is the biggest winner from the aborted buyout, given that it would have lagged even further behind in terms of subscriber numbers if they deal had gone through. But as I’ve said before, Sprint could have actually benefited from the merger in other ways.
No… I’m convinced that the biggest winner here is T-Mobile’s owner, Deutsche Telekom (OTC: DTEGY.PK).
You see, although the company lost out on $39 billion, it ended up with a pretty sweet deal in the process…
~ New Mobile Markets: As part of their initial agreement, AT&T is handing T-Mobile spectrum licenses in 128 U.S. markets. That includes some of the biggest mobile hotspots – San Francisco, Atlanta, Los Angeles, Boston, Dallas, Washington DC and Seattle.
~ License to Roam: T-Mobile is also getting a seven-year roaming agreement from AT&T. This lowers the cost for T-Mobile’s out-of-range customers to use AT&T’s network, giving the company access to an additional 50 million consumers.
~ Cash: To top it off, T-Mobile is receiving a solid $3 billion cash infusion from AT&T by the end of the year. Not a bad Christmas present.
Increased mobile spectrum, reduced pricing for its roaming customers and extra cash to boot? It’s not exactly $39 billion, but I wouldn’t call that a total loss, either.
And I’m convinced that as long as T-Mobile uses these new assets wisely – by expanding coverage and continuing to offer competitively priced plans – it could see a massive boost in its subscriber base next year.