With its proposed takeover of T-Mobile USA, AT&T may have set off a storm in the world of telecommunications, not to mention a whirl of trading on Wall Street and the prospect of a year of hearings, investigations, and not-so-quiet deal making in Washington. But the country’s largest wireless carrier, Verizon, seemed largely unfazed by its rival’s effort to leapfrog to the top of the industry.
Many analysts and Verizon investors felt the same. In fact, a consensus seems to be forming that despite serious challenges ahead, Verizon may ride this one out just fine.
Of course, Verizon’s future is anything but certain. The merger of AT&T and T-Mobile, even if it eventually falls through, will dominate the telecommunications scene in Washington and on Wall Street, and the deal holds many potential pitfalls for Verizon.
Top executives at Sprint and Internet service provider Clearwire attacked the proposed merger, however, while Verizon’s CEO shrugged it off. Stock values for both Sprint and Clearwire plummeted after Sunday’s announcement, but Verizon’s shot up.
“We'll be watching what goes on here,” Verizon CEO Dan Mead told an audience at this week’s CTIA telecommunications conference in Orlando, Fla. “But we're very confident in our position." Mead went on to say that he is “not concerned” about the effect of the proposed merger on competition or innovation.
Analysts say that, unlike AT&T, Verizon has access to the spectrum it needs. And unlike Sprint, which lost $3.5 billion last year, Verizon made more than $63 billion.
“I don’t think this is a major concern for Verizon,” said Paul Glenchur, a senior telecommunications analyst for the Potomac Research Group. “I think they’ve indicated that they’re not too worried.”
A potentially protracted and expensive legal and regulatory process may keep AT&T and T-Mobile tied up for the next year, allowing other other companies to reposition themselves. And no one is in a better position to take advantage of the coming fight than Verizon. The company features a range of popular phones, and recently gained access to Apple’s iPhone, allowing Verizon to compete more directly with AT&T.
Rival carriers may look to leverage AT&T’s distracting merger process to their own benefit by courting customers who might be worried about future rate hikes or service problems. Some analysts have speculated that a combined company would adopt prices closer to what AT&T currently offers, rather than the cheaper T-Mobile rates.
When Standard & Poor's Equity Research upgraded Verizon from "sell" to "hold" on Monday, it noted that the merger could provide the country's largest wireless carrier with "opportunities to defend and perhaps increase its wireless market share in the near term."
“It is true that a lot of resources go into a major merger like this,” Glenchur said. “But that is certainly something that AT&T would anticipate.”
If federal regulators impose price conditions, that could erase any hope that Verizon would be competing against a similarly priced rival, Glenchur said.
Almost immediately after AT&T announced its plans, some observers speculated that Verizon would move to snap up Sprint. That is always a possibility, but Verizon’s Mead has said his company has no interest in buying Sprint, and analysts agree that the wireless giant is unlikely to acquire any other major carrier until the AT&T deal is resolved.
“In our view, the two most likely candidates are Sprint and MetroPCS/Leap,” wrote Town Hall Investment Research analyst Jamie Townsend. “Both options carry a variety of issues, and we are far from confident that either will occur. At the same time, the long-term competitive environment for both of these options has just gotten considerably worse.”
Glenchur predicted that the ongoing merger process could cause other carriers to sit back for now. “But there is also the likelihood that it could spark more aggressive negotiations behind the scenes,” he said.