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Technology / telecommunications

T-Mobile's Future Uncertain, With or Without AT&T

Randall L. Stephenson, president & CEO, AT&T, (left); Philipp Humm, president & CEO, T-Mobile USA.(Richard A. Bloom)

photo of Juliana Gruenwald
September 2, 2011

In the months leading up to Wednesday’s Justice Department lawsuit to block AT&T’s acquisition of T-Mobile USA, both firms repeatedly asserted that T-Mobile did not have a future on its own and must merge with its bigger rival.

As recently as Wednesday morning, AT&T Senior Executive Vice President Jim Cicconi told National Journal that T-Mobile would have difficulty competing in the future. “T-Mobile is clearly a company that had no plan to compete in [next-generation wireless] going forward,” Cicconi said.

T-Mobile USA’s CEO, Philipp Humm, made the same point at a May hearing on the merger before the Senate Judiciary Committee.  “As data usage continues to explode, spectrum is becoming a constraint to our business, with T-Mobile facing spectrum exhaust over the next couple of years in a number of significant markets,” Humm testified. “Moreover, our spectrum holdings will not allow us to launch [long-term evolution],” he added.

 

And T-Mobile’s parent, Deutsche Telekom, Humm said, is not in a position to make big U.S. investments to keep T-Mobile competitive.

If the Justice Department succeeds in blocking the deal, T-Mobile, the nation’s fourth biggest wireless provider, will get a chance to find out if these dire warnings are accurate.

Analysts and others following the merger deliberations had mixed views on what the future holds for T-Mobile if the merger is ultimately derailed, although most agree that the company would have a difficult time competing on its own. Some say that T-Mobile will eventually need to seek a new partner. “There’s a good chance they would do that,” Potomac Research Group analyst Paul Glenchur said.

Some merger critics argue that T-Mobile might be an attractive target in the wake of the Justice Department’s move. AT&T, which would leapfrog Verizon Wireless to become the nation’s top mobile operator if the deal were approved, reportedly agreed to give T-Mobile a breakup fee worth at least $6 billion in cash, spectrum, and roaming fees. 

"T-Mobile just became a lot more attractive,” Public Knowledge Legal Director Harold Feld said during a conference call. "This is a profitable company.... The fact is, it’s still a good company to own."

Media Access Project Senior Vice President Andrew Jay Schwartzman says there are many other possible merger candidates for T-Mobile, including cable or satellite companies and other wireless carriers.

Sprint had been seen as a possible suitor for T-Mobile before AT&T’s $39 billion takeover offer. A Sprint spokesman wouldn't comment on whether the company covets T-Mobile.

Jeffrey Silva, senior policy adviser with Medley Global Advisors, said he doesn’t discount the possibility that Sprint could reemerge as a possible merger partner for T-Mobile, even though such a deal would still reduce the number of national wireless carriers from four to three.

The Justice Department cited competition as a main reason for its opposition to the merger of AT&T and T-Mobile, but that objection would not necessary apply to a smaller partnership between Sprint and T-Mobile. “The facts and the market implications for the two weakest [wireless carriers merging] could bring about a different result," Silva said.

Geoffrey Manne, a lecturer at Lewis & Clark Law School, disagrees, saying he doesn’t see how Justice could approve a possible T-Mobile-Sprint merge, given the importance that the department put in its AT&T lawsuit on ensuring the survival of at least four national wireless carriers. He added that he also doesn’t see how T-Mobile can survive, regardless of whether Justice prevails in its lawsuit.

Telecom analyst Roger Entner has the most dire prediction, saying that T-Mobile is dying a “death by a thousand cuts. “T-Mobile is going to be gone, either in a quick way [by being bought by AT&T] or a slow way,” he said.

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