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kingfishblacksmithMobile - Wireless

Dec 14, 2013 (3 years and 3 months ago)

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AT&T announces intent to buy T
-
Mobile USA


In March 2011 AT&T announced its intent on merging with T
-
Mobile from Deutsche
Telecom, in a deal valued at an estimated $39 billion.
AT&T would pay for
$
28 billion and
pay for the balance in stock.
In exchange AT&T would give Deutsche Telecom 8% of
AT&T ownership.
This merger, if approved by the Federal Communications Commission
(FCC) would eliminate a player from the competitive market of telecom and mobile data and
consolidat
e

power in the hands of

a
few
mega
players (AT&T, Verizon, Sprint).

The FCC

is
currently
reviewing the merger due to antitrust concerns,
and to determine
whether the
merger is in the public
interest.



The key

strategy

driving AT&T to merge with T
-
Mo
bile
is increasing its

wireless spectrum

access

to meet growing demand
, especially following the launch of the iPhone on its
network in 2007
. AT&T currently is unable to keep up with
ballooning

mobile data usage

and is suffering damage to its reputation as customers complain abo
ut dropped calls
. As
mobile data providers shift rapidly to 4G

and Long
-
Term Evolution (LTE)

wireless

networks, AT&T
does not have the luxury of time to wait for approvals to build new towers
to improve its network
. A
cquiring T
-
Mobile is a relatively fast
way to increase its coverage
.
There are also obvious financial benefits to shareholders.



This opinion note looks b
eyond the financial benefits to
AT&T
shareholders,
and considers

five

key
points when
weighing

the benefits of the proposed merger

on the ec
onomy
:


1.

Impact

on the competition

2.

Impact

on the supply chain

3.

Impact on technology standards

4.

Impact

on the consumer

5.

Impact on
innovation


Impact on Competition
:

If AT&T's purchase of T
-
Mobile USA
is approved
,
the
market
would primarily consist of three
national players: AT&T, Verizon and Sprint
,
bringin
g the
market one step away from
,

effectively
,

a
duopoly
.

AT&T would become t
he largest mobile
operator in the U.S.
with

about 13
1

million subscribers

(97 million AT&T and 34 million T
-
Mobile subscribers)
, outpacing Verizon’s
104

million customers.



T
-
Mobile
is

the
fourth largest mobile operator in the country with 34 million subscribers.

T
-
Mobile
is a price leader,
offering cheaper voice and data plans
to

compete with its larger
rivals
. Th
is

competition has kept the prices in the market

relatively
low
, benefiting

U.S.
consumers.
On the downside, i
t doesn’t have iPhone access

(except for customers who have
been able to unlock their
GSM
phones)
,
which

the merger would presumably provide its
cus
tomers.
In the meantime, T
-
Mobile is offering the

Samsung Galaxy

S 4G
,
Sidekick 4G

and myTouch 4G instead.

The two visible advantages of a merger with AT&T would be
having access to iPhone
,
and a
s a measure to counteract their
contract churn
problems.


Ver
izon is
currently
the leading

wireless operator in the US with 10
4

million subscribers
.

If
the merger were to be approved, Verizon would
move down

to second place. Between its
recent iPhone
offering
,
broad range of Android products

and a strong network

expanded
through its recent Alltel Wireless acquisition
,

Verizon is well positioned to generate new
business

and preserve a strong position in the market.

Sprint
,
however, may not fare as well.
Before the AT&T announcement, the

nation’s third largest carr
ier was
also interested in
buying T
-
Mobile
, potentially to turn around the downward
spiral

of its subscriber base
, to
strengthen its weak smart phone offering,
band aid over post merger challenges with Nextel

and
to shore up
profits
.
If the AT&T m
erger is
not approved
Sprint
may

have to match or
better the $39 billion offer

to
acquire

T
-
Mobile.

At the very least,
Sprint

which often sided
with

T
-
Mobile against AT&T and Verizon on a var
iety of regulatory issues
; would
be left to
fend for itse
lf
.


Impact on the
s
upply chain:
Th
ere are five main OEMs in the US:
Samsung, LG, Motorola,
RIM and Nokia, with the first three making up about
65%

of the market

with smaller OEMs
like HTC following close behind
.
Of this group, h
andset makers HTC and Motorola
currently supply GSM
-
based phones to two major carriers. In a post
-
merger market
environment, they would be left with a single buyer, effectively limiting their ability to
control their handset pricing and profits.

Infrastructure network equipment makers A
lcatel
-
Lucent, Ericsson, and Nokia Siemens are also on the same boat.


A consolidated set of OEMs selling to a consolidated set of carriers may lead to exclusive
partnerships to ensure continuity of business revenues, as well with lock
-
in clauses for clie
nts
to limit defections to competitor products. This trend would go hand in hand with a
consolidated carrier
market that

is able to name its price and terms as customers have fewer
options remaining.


Impact on technology standards:
AT
&T’s
play to acquire
more GSM capability through T
-
mobile, in addition to its other GSM property Cingular Wireless,

may be signaling

AT&T’s
broader ambitions of
GSM
market dominance
,

not just in the US but
also
beyond
.

A
fter the
merger, AT&T would be the only one offering GSM
network in the US.


While CDMA is predominant in the US,
CDMA
networks
suppor
t 270 million users
worldwide,
compared to 1
.5

billion GSM providers worldwide

accounting for 80% of global
market use.

With the T
-
Mobile acquisition, AT&
T would be strengthening its position as a
GSM player, not just in the US, but in global markets.

I
mpact on the consume
r
:

If AT&T's purchase of T
-
Mobile USA
is approved
,
the
market
would primarily consist of three national players: AT&T, Verizon and
Sprint
, bringing the
market one step away from, effectively, a duopoly
.

With T
-
Mobile out of the picture
, a
significant price leader

with low pricing for data services

in the mobile market

will
be eliminated,
strengthening AT&T and other remaining players
positions to raise subscription fees to customers.

Impact on innovation:

T
-
Mobile
is considered

experimental and innovative
, toying with
emerging

technologies such as UMA

and

buil
ding

its own handsets
.

AT&T

has made
headlines more often due to its acquisit
ions


most recently Cingular Wireless, some Alltel
assets and a number of Baby Bells prior to that

instead of making a mark on bringing
innovation to the market. Its actions indicate that it is

more interested in regaining market
dominance than it is in innovative leader
ship
.


Conclusion

While the industry
welcomes

consolidation as it provides scalability and efficiency that
translate to a larger bottom line, consolidation of mobile data provide
rs may not be as
desirable for consumers, leaving them with dwindling choices when it comes to choosing
mobile data service providers that can name their price.
Beyond the
benefit
to

shareholders,
the
broader implications to
the competitive market environm
ent, the supply chain, the
consumers
;

technology

standards and on innovation must be carefully considered.


While
AT&T
claims the merger would not threaten competition,

a

glance at mar
ket share
screams consolidation, with

three players (Verizon, AT&
T with T
-
Mobile and Sprint)
making up over

80% of the national market
. As FCC conducts its due diligence,
T
-
Mobile
should
also
carefully reconsider
the benefits

of this merger
, and
determine
whether

it would
be worth
while for them to go forward
. They
just
may be better off sticking with
those

commercials showing how T
-
Mobile is better and faster than AT&T.
Perhaps

it is.