AT&T And T-Mobile: What's Next?
Justice Department lawsuit has more or less imploded AT&T's attempt to acquire T-Mobile. What options do the companies have now?
The next six to 18 months aren't going to be pretty for either AT&T or T-Mobile. With the final outcome of AT&T's attempted acquisition of T-Mobile in the air indefinitely, both companies will have to prevent themselves from stagnating as the competitive wireless market rages on.
The Department of Justice filed a lawsuit against AT&T Wednesday, claiming the deal would lead to an anti-competitive entity with too much power in the market. This is what many have suggested from the beginning. Worse, the Federal Communications Commission (FCC) piled on, saying that the merger presents troubling issues.
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"Although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition," wrote FCC chairman Julius Genachowski.
Never mind all the bloviation coming from the key players, pundits, and industry watchers. In the wireless industry, the short term matters just as much as the long term, and AT&T and T-Mobile can't afford to lose focus on the here-and-now while pursuing this down-the-road goal.
Let's look at the short-term issues facing both.
AT&T: AT&T is on the cusp of rolling out its long-awaited Long Term Evolution 4G network. Initially launching in five markets, AT&T plans to spread to another 15 markets by the end of the year. While surely this network deployment will proceed unaltered, AT&T was planning to use T-Mobile's spectrum for 4G services in some markets. AT&T needs to evaluate how soon that is going to impact its LTE rollout schedule.
If the T-Mobile deal collapses completely, AT&T is going to lose out financially. It agreed to pay T-Mobile a breakup fee in the neighborhood of $6 billion. Shareholders won't be happy about that. AT&T could face a shareholder lawsuit over such a huge loss.
T-Mobile: T-Mobile will be by far the bigger loser if the deal collapses. Deutsche Telekom, the parent organization of T-Mobile USA, was completely caught off guard by the DOJ lawsuit and doesn't have a contingency plan. They're going to have to come up with a new strategy ASAP.
T-Mobile has been aggressively moving forward with its high-speed network rollout, but it is behind the big boys. T-Mobile's HSPA+ network is already reaching 21 Mbps and 42 Mbps in some markets, and the company plans to increase those speeds to 84 Mbps down the line. But the company doesn't have the spectrum resources to fully launch true 4G in the form of LTE. Without an LTE or WiMax play, its HSPA+ can only get it so far.
T-Mobile has been losing customers in recent quarters, and the leakage shows no signs of stopping. Without AT&T, T-Mobile needs to find out how to retain the customers it has, as well as sign up new ones. It is already viewed as a lower-cost option to AT&T, Sprint, and Verizon. T-Mobile needs to do more to play this up and rekindle interest in its services.
You can be sure that Verizon Wireless is not going to let up any pressure on AT&T. Its LTE network already outclasses AT&T's network performance. AT&T needs to keep up with Verizon. It will be harder--but not impossible--for it to do that without T-Mobile. T-Mobile is already a distant fourth in the U.S. market. How it will keep up with its larger rivals is anyone's guess--especially since its parent company in Germany obviously wants to ditch the U.S. subsidiary.
In the meantime, both companies need to figure out how to manage their existing vendor relationships with handset makers, networking gear providers, software developers, and others, knowing that the end of the road has yet to be defined. The lack of finality may make it harder for both companies to get the terms they want when it comes to handsets, networking gear, and other tangibles.
AT&T and T-Mobile USA are facing very real short-term and long-term problems. The sooner this merger mess can be cleaned up, the better for everyone involved. The question is, how long will it drag out, and who will be left standing when it's all wrapped up?
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