Just what did they expect?
“My feeling from the beginning has been, this felt like it was using a sledgehammer to crack a nut,” says Ovum’s Jan Dawson. He’s talking about the part of the proposed deal that ATT has said from the beginning was its key objective: the integration of the two companies’ 4G LTE wireless networks.
“If the objective really was just to get spectrum, access to cell towers, then spending the $39 billion to acquire the entire company just felt like overkill. If you look at T-Mobile on paper, those are the main assets they have,” Dawson goes on. “They have a customer base that they’ve struggled to grow; the brand is pretty good, but it does look like ATT was planning on eliminating that. So you’re kinda wondering, do you really need to acquire the whole company to get this? You wonder if somewhere, in all of this, part of the motivation was that ATT had lost the #1 spot in terms of number of subscribers to Verizon awhile back, and they felt the best way to get it back on a pretty permanent basis was to cement its position as the largest wireline carrier, the largest DSL carrier, and the largest wireless carrier in the U.S.”
“ There’s no reason why competitors can’t partner up on initiatives. Bell and Telus built a consolidated 3G network, recognizing that the size of the market and the geographic coverage to reach that market did not justify a single-company investment.”
Carmi Levy
Contributing analyst, CTV News Channel
After ATT announced its intentions last March, telecoms analyst firm ABI Research went on the record as believing “at the end of the day, the deal will go through in one form or another.” Granted, the day has not ended, but this deal may already be history.
In fact, ABI’s Mark Beccue isn’t prepared to stick a fork in it even now. As he explains to us, “ATT’s very clear about what they want [T-Mobile] for. They want the spectrum, because they’re succeeding and they need it.”
But T-Mobile’s cell towers make for a nice little prize on the side, Beccue goes on. When you consider the licensing and construction costs for building cell towers on a local level, he says, it’s too great an expenditure of both money and time now for a company of any size to undertake on its own. ATT would gain increased capacity and better service, and one might be surprised to learn that even at a $39 billion price tag, that’s a bargain.
Beccue disagrees entirely with Dawson’s assessment of ATT’s motives. “At the highest level – ATT, Sprint, and Verizon – what do they need? They don’t need subscribers. They’ll go get them on their own. What they need is assets.”
What did the government think it could accomplish?
While the FCC claims it’s upholding a principle of preserving free and fair competition in presenting its objections to the merger deal thus far, Beccue believes that the current free and fair market does not necessarily want competitors to be artificially preserved like jellies and jams. “It’s puzzling to me why the government would be opposed to this merger. They’re not thinking about what would happen if they don’t allow it to happen. And I think that’s pretty dangerous.”
The ABI analyst points out that T-Mobile has been trying to sell its U.S. property to someone for years. Its parent company, Deutsche Telekom (T), never put its heart into T-Mobile, he says. And in a way, the act of not wanting to put the effort into T-Mobile to make it competitive, to make it leapfrog over #3 Sprint, creates a kind of Darwinian competition, the result of which being that only ATT would want to buy it.
“The government’s saying, ‘You can’t sell it to somebody who wants it.’ And nobody else wants it,” Beccue remarks. Although government regulators make the argument that preserving T-Mobile makes Sprint stronger, he believes, Sprint itself demonstrated the opposite by not wanting to buy T-Mobile when it had the opportunity.
NPD’s Ross Rubin disagrees with several more of Beccue’s points, including that no one else but ATT would want T-Mobile’s assets. “If the merger falls through, then a number of things could happen, but clearly Deutsche Telekom has indicated that they want to divest themselves of this operation. And there’s been some discussion over whether it could be acquired, perhaps, by a satellite provider such as Dish.”
Now that Sprint will be moving to LTE along with its competitors, Rubin says, it could conceivably add T-Mobile’s spectrum holdings in the 1.7 GHz band to its own. LTE is not only a more expensive infrastructure to build and maintain, he points out, it requires sophisticated smartphones that will remain on the high end of the value scale for some time to come. What every competitor needs in this market needs to compete is a type of scale that Beccue didn’t mention.
“It is difficult or impossible to compete if you’re not offering subsidies on smartphones,” states Rubin. “You can’t just be a post-paid wireless carrier in the U.S. without doing that. So to the extent that T-Mobile – as an independent entity or part of another organization – would continue to be in the consumer cellular business, it would need to continue to offer subsidies to be viable.”
“If the objective really was just to get spectrum, access to cell towers, then spending the $39 billion to acquire the entire company just felt like overkill.”
Jan Dawson
Chief Telecoms Analyst, Ovum
Doesn’t that mean, we asked Rubin, that any prospective post-ATT purchaser of T’s U.S. assets would have to be at least no smaller than Dish Network, in order to continue to have enough cash on hand to subsidize at least a few brand-name 4G phones? Not if multiple companies are willing to pool their resources, Rubin responds, pointing out last week’s deal by Verizon to purchase spectrum held by cable companies, including Comcast, in exchange for scaling out their triple-play service offerings.
The word that’s used to describe a deal that may enlarge a company’s reach in a (presumably) good way, without entering it into too many monopolies in a bad way, is “horizontal.” Verizon’s deal with the SpectrumCo alliance could be described that way; it was used by the FCC in 2004 to describe what it then perceived as the positive benefits of a merger between the old ATT Wireless and Cingular; and it’s also been used by ATT and others to characterize the potentially positive buildout of its 4G holdings while maintaining competitive par with Verizon and Sprint.
“It’s difficult to escape the irony. A horizontal combination of service is a euphemism if ever there was one,” states Carmi Levy. “It’s essentially another word for less competition.
“In 2004, when you had more players on the playground, the FCC might have found it acceptable to have relatively fewer, more bulked up players providing those horizontally combined services. But in 2011, where you’ve already gone through an additional seven years of industry consolidation, and now the giants loom that much larger, the FCC is probably looking at the end of the era of consolidation, and asking itself, ‘When do we begin to say no? When is horizontal combination too much for consumers to bear? When does it begin to erode competition to the point that we essentially have a monopolistic landscape?’”
Next: Why not a joint venture instead?
Article source: RRW http://feedproxy.google.com/~r/readwriteweb/~3/ix281yDSM18/panelists-the-endgame-for-att.php