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AT&T, the nation’s second-largest carrier, is looking for a European carrier to buy, The Wall Street Journal reported Jan. 17. An investment abroad would help it “escape constraints on growth at home” and, in Europe, enable it to offer upgraded technologies and more lucrative pricing strategies, said the report.
AT&T is said to be doing its homework at this point, studying what’s available and hopeful of making a deal by the end of the year.
The Journal suggested carriers in the Netherlands, Germany and United Kingdom might be of interest, specifically Everything Everywhere, one of the U.K.’s largest carriers, and Royal KPN, the largest carrier in the Netherlands.
More likely, however, AT&T will go after something smaller. Reuters noted that Spanish telecom company Telefonica had, in a move to reduce debt, offered for sale a portion of its German subsidiary Telefonica Deutschland.
Still, analyst Robin Bienenstock, with Bernstein, told Reuters she expected AT&T has little chance of executing a takeover in Europe.
“Whilst it’s possible, I think it’s probably only at the early exploratory stages, and were AT&T to do reasonable due diligence, it seems unlikely such a deal would go through,” she told a reporter.
Another analyst, Jos Versteeg of Dutch private bank Theodoor Gilissen, shot down the idea of a KPN sale, pointing out that one-third of the carrier is owned by Mexican billionaire Carlos Slim’s America Movil, and Slim “is a long-term investor.”
AT&T tried to purchase U.S. carrier T-Mobile in 2011, but federal regulators ultimately blocked the deal, believing the size of the combined carriers would have disastrous effects on competition in the wireless market. AT&T has since pursued smaller deals, and in November announced a three-year plan to upgrade its network and pursue new areas of interest and revenue, such as the connected car and an IP-based home security solution. According to AT&T, 80 percent of the country doesn’t have a home security system because of a “lack of affordable options.”
In a market in which new customers aren’t easy to come by, and pricing and network quality, instead of exclusive device offers, are greater motivators for subscribers, AT&T, like Verizon Wireless, has been focusing on rolling out high-speed Long Term Evolution (LTE) technology to more markets and finding more ways for customers to use more data. Last summer, AT&T and Verizon both introduced shared data plans, which encourage users to connect more devices to their networks. A particular interest for the carriers is getting users to attach tablets.
“It’s going to be raining tablets,” AT&T Mobility CEO Ralph de la Vega said at a Nov. 7 event in New York City, which will offer AT&T a “tremendous growth opportunity” to monetize that data.
While a merger abroad would help AT&T grow subscribers, that’s not to say AT&T is hurting. During AT&T’s third quarter of 2012, it added only 151,000 new postpaid customers—one-tenth the number that Verizon gained during the same quarter. Still, it posted record free cash flow, wireless revenue growth of 6.6 percent and consolidated revenues of $31.5 billion.
Chief Financial Officer John Stevens, during an Oct. 24 earnings call, tried to put the carrier’s relatively low growth rate into perspective.
“I want to make a point from simply a financial perspective, a finance guy’s perspective,” Stevens told analysts and media on the call. “Revenue growth is 6.6 percent. Service growth is 4.5 percent. ARPU [average revenue per user] growth is at 2.4 percent. And when you take out the data-only devices, ARPU growth is at 3 percent. What’s not to like about a business, in this economy, that’s growing revenue like that?”
AT&T is offering no comment on the report.
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