And Then There Were Three? Implications of the AT&T and T-Mobile USA Deal

| Mar 21, 2011 | Consumer Devices, Consumer Services
| Analysts: William Ho, Avi Greengart

Event Summary

March 20, 2011 - AT&T and T-Mobile announced an agreement in which AT&T will acquire T-Mobile USA from Deutsche Telekom (DT) in a $39 billion transaction of which $25 billion will be cash and $14 billion in stock. With the expected approval in 12 months, DT will have an 8% equity stake in AT&T.

Quick Take

Analytical Summary

• Current Perspective: Positive on AT&T’s acquisition of T-Mobile USA, because the pending acquisition not only puts AT&T back on track to be America’s largest carrier, the equipment and spectrum synergies lay the foundation for AT&T to address future explosive data growth and demand. Yet consumer groups and advocates playing it as a loss of competition and low cost choice may provide a challenging backdrop to prove that the deal is ultimately good for the country.

• Vendor Importance: Very high to AT&T, since gaining access to T-Mobile’s AWS national spectrum allows it to deploy LTE in that band and complements its 700 MHz LTE deployment. All this plays well to provide a potential 294 million population (95% of U.S.) coverage to complement presidential and FCC initiatives to “connect every part of America to the digital age”, promoting economic growth, investment and job creation. Very high also to Deutsche Telekom, T-Mobile USA’s parent, since it gives the company an honorable way out of its last place position in the U.S. without taking on massive amounts of additional debt to build out a next-generation network. Instead, Deutsche Telekom gets cash to pay down its existing debt and can benefit from any upside in the U.S. wireless market with an 8% AT&T equity stake.

• Market Impact: Very high on the wireless services market as a combined AT&T and T-Mobile creates a formidable competitive force. While Verizon Wireless has the scale to rival the new AT&T, Sprint and other competitors such as US Cellular, Leap and MetroPCS will be under more pressure due to AT&T’s even better purchasing scale for marketing, network infrastructure, devices and operations. The deal is also significant for mobile device vendors who will have to manage shifts in frequency bands and technologies in upcoming designs while jockeying for position on the shelves at the new, larger AT&T.

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Current Perspective

Competitive Strengths and Weaknesses

Response & Recommendations

Analytical Perspective

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