AT&T's
decision to buy T-Mobile may have been partly motivated by a desire to keep the
latter out of the hands of competitor Sprint. However, should regulators
approve AT&T's bid to acquire the nation's fourth-largest carrier, Sprint
may still get a part of T-Mobile, according to analysts at Citadel Securities.
While it has
been widely suggested that AT&T would have to make a number of concessions
to receive the approval of regulatory bodies, including the Federal
Communications Commission, the analysts at Citadel suggested in a March 24
research note that AT&T executives are downplaying the scale of the efforts
that will be required.
"AT&T
has said it expects to have to make some concessions to get regulatory
approval, but its initial working assumption is that no divestitures will be
required," states the report. "We think this is likely an
exaggeration, and that AT&T may, in fact, be ready to make very significant
divestitures."
While
AT&T's Stock Purchase Agreement filed March 21 suggests the carrier is
ready to divest up to 40 percent of T-Mobile’s subscribers, the Citadel analysts
said, "We think AT&T may not be opposed to divesting even more in
order to get the deal closed."
Far from
considering paying a $3 billion reverse breakup fee, the report continued,
AT&T will likely be content to acquire however much of T-Mobile the
regulators will allow and to divest as much as it needs to. The divested
portions, then, could be picked up by Sprint, which reportedly was interested
in T-Mobile but unable to out-bid No. 2 market leader AT&T.
"[T]he
eventual outcome of this deal could be that AT&T does successfully acquire
T-Mobile, but is required to divest perhaps up to half of T-Mobile’s
subscribers," stated the report. "We would view this outcome as
positive for Sprint, which we believe would be a likely bidder for the divested
operations. Although not as favorable as a straight Sprint/T-Mobile merger (at
a fair valuation), Sprint’s ability to acquire some portions of T-Mobile would
help it achieve better scale."
T-Mobile,
being pulled in two directions, may appear to be a bit of a sorry victim in all
this. Despite being the first U.S. carrier to offer an Android smartphone, it
has had trouble competing against its larger rivals. During a presentation to
investors Jan. 21, T-Mobile USA CEO Phillip Humm announced,
"T-Mobile is now ready to turn the business around."
But save your
tissues, Danish research firm Strand Consult said in a March 24 report.
T-Mobile USA is simply a victim of mismanagement by executives of parent
company Deutsche Telekom, who didn't apply lessons they'd learned elsewhere to
their American undertaking, the analysts said.
Many of the
problems T-Mobile was struggling with "could have been eliminated if they
had just been a little better at identifying and utilizing the experience and
information"—such as from carriers KPN and Telfort in Holland and E-Plus
in Germany—"that they already had access to within their own international
corporation," the report said.
For one, T-Mobile
should have taken advantage of being a player based on GSM technology—the predominant
protocols worldwide—competing against networks, such as Verizon and Sprint,
which are based on CDMA (Code Division Multiple Access) technology. In South
America, for example, carriers have done this successfully.
"There
are many advantages when selling GSM-based mobile services," stated the
report, "including roaming, easy reuse of mobile handsets and especially a
far greater selection of mobile handsets that are most often significantly
cheaper than corresponding CDMA mobile handsets."
Additionally,
while carriers abroad were pursuing a more open value-added-services strategy,
T-Mobile, suffering from "inferiority complexes regarding their American
competition," stuck with the model being pursued by the other U.S.
carriers.
"Today,
most of the VAS market in the USA is simply bypassing the operators, with
market players like Apple selling services directly to customers without
operators receiving any revenue from that business area,” Strand Consult said
in the report.
The analysts
also highlighted T-Mobile's decision to follow the most expensive type of
distribution model; that it didn't learn from E-Plus' success in pursuing an
aggressive MVNO (mobile virtual network operator) strategy; and that in
focusing primarily on the prepaid market, it lost out on trends already playing
out in other countries.
Deutsche
Telekom's American T-Mobile venture, the report concluded, "has been
scrapped; those that ought to be held responsible for this sad turn of events
will not be accused of anything, and the shareholders will once again realize
that they have invested in a company that despite all their experience and
knowledge could not perform."
With the party
over, it seems, it's now up to American regulators to decide just how the
choice bits left behind will get divvied up. And that will take a while.
According to a report in the Wall Street Journal, the FCC plans to proceed
slowly—just as it did during a recent proposed merger between satellite radio
providers Sirius Satellite Radio and XM satellite Radio. FCC Chairman Julius
Genachowski has made clear that the FCC believes it's in the American people's
best interests that there's "healthy competition" among carriers, all
looking to offer fair prices and good service.
"There's
no way the chairman's office rubber-stamps this transaction," an FCC
official told Journal. "It will be a steep climb to say the least."
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