I suppose the move must have made perfect sense to a lot of AT&T’s executives. After all, the company was a survivor in the aftermath of a long-ago antitrust decision to break up “Ma Bell,” and create a bunch of “Baby Bells.” AT&T’s second coming was the result of mergers and acquisitions, and thus, when they decided to invest $39 billion dollars to acquire T-Mobile, they felt it would sail through.
If this decision were made a few years ago, maybe it would have gotten reasonably quick approval after some pro forma evaluation. The U.S. Department of Justice in the Bush years was more apt to allow large corporate mergers. But the Obama administration should have been expected to be more cautious about such things.
Now AT&T’s excuse for acquiring T-Mobile was all about the customer experience. AT&T has been rightly attacked for having subpar networks in many cities, and buying up another company would give them the spectrum and network capacity they needed to deliver fewer dropped calls on a more reliable network.
The skeptics, including Sprint, the number three U.S. carrier, suggested it was all about killing a competitor, and regaining the number one spot in the market. Remember that AT&T was number one until Verizon Wireless acquired a smaller mostly regional carrier, Alltel, for $28 billion. Since Alltel had a fraction of T-Mobile’s customers, getting the whole kit and caboodle for only $11 billion more than Verizon spent must have seemed a bargain. And if Verizon Wireless could buy their way to the number one position, surely AT&T could do the same.
AT&T’s blissful spin about the benefits of the merger collapsed when a document accidentally posted by the legal firm working on the deal revealed that AT&T could deliver much of what it promised with this $39 billion dollar deal — meaning increasing 4G or LTE network coverage from 80% to 97% — for a “mere” $3.8 billion. The document was quickly pulled from AT&T’s site, but not before prying eyes got to see this critical revelation. It threw AT&T’s excuses for the deal out the window, and, no doubt, cost someone in that law firm a job (though I can’t say that for certain).
Regardless, the bad news kept on coming for AT&T. First the Department of Justice decided to take legal action, after which the FCC said that it would oppose the merger. After mulling over their options for a short while, AT&T took the hint, and gave up on the deal. This meant a $4 billion breakup fee payday for T-Mobile’s parent company, Deutsche Telekom, along with a joint roaming agreement that will give the smaller company more coverage in more places.
Having saved all that money, one hopes that AT&T will do the right thing and invest properly in repairing and expanding their network. If they could afford to spend $39 billion to buy up a competitor, surely they could double that $3.8 investment in network enhancements, spend a bundle on promoting the new service, and maybe return some of the rest in dividends to AT&T’s stockholders.
I suppose the real question is what’s going to happen with T-Mobile. Clearly the owner, Deutsche Telekom, would love to dump it if they can attract a credible offer, but the question is from where would those offers come.
Some suggest Sprint, but the two companies have incompatible networks, and Sprint already ran into serious trouble dealing with that sort of problem when they acquired Nextel some years back. According to Avram Piltch, Online Editorial Director of Laptop magazine [1], other potential suitors include, believe it or not, such retailers as Radio Shack and Wal-Mart, and, of course, Dish Network.
Did I say Dish Network?
Well, as you know, cable providers have been going after wireless carrier deals so they can offer cell phone service as a bundle to customers. Dish Network recently bought up the shattered remnants of a video rental chain, Blockbuster for a song, so they surely have the cash to make a larger acquisition. Being able to offer wireless phone service might make for a compelling bundle, the better to enhance Dish’s standing as it struggles to compete with the number one satellite provider in the U.S., DirecTV.
But even if Dish Network were to make that offer, that would only represent the beginning of their investment. As it stands, T-Mobile’s network is crippled, because the frequencies they’re saddled with aren’t compatible with AT&T’s GSM network, though that would have been worked out had the merger gone through. But it also reduces the possibility that T-Mobile could get an iPhone. It made sense for Apple to offer CDMA to support Verizon, Sprint, and some other large services around the world. But T-Mobile is not in that position and thus doesn’t offer as compelling a reason to attract Apple.
Even worse, T-Mobile’s churn rate — the number of customers who are leaving the service — is said to be a lot higher than AT&T, even though the latter has had ongoing network problems in some larger U.S. cities.
As for The Night Owl, in Phoenix AT&T delivers decent enough service. Call quality is good, download speeds are decent, and I’ve seen no reason to jump ship even though I have two other options for my next iPhone. But I do hope AT&T, having lost out in their attempt to find a quick route to the number one spot, will hunker down and do it the right way, by building a better service, and maybe even cutting some of the prices here and there.