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Summary:

AT&T’s proposed acquisition of T-Mobile seems all but dead. If the deal falls through mobile operators stand to gain or lose depending on which of side of the battle lines the stand. The biggest losers, however, aren’t necessarily AT&T and T-Mobile.

winner

With the Federal Communications Commission’s move last week to impede AT&T’s $39 billion acquisition of T-Mobile USA and AT&T’s subsequent withdrawal of its petition, the chances this merger will happen are dwindling to almost nil. AT&T may even be getting desperate: Bloomberg reported that AT&T is now prepared to part with 40 percent of T-Mobile’s assets in exchange for a thumbs-up from the U.S. Department of Justice. Saving some last-minute Hail Mary deal or a shocking ruling in AT&T’s favor in the DOJ’s lawsuit, AT&T-Mo seems all but dead.

So what happens in the aftermath? Every operator would have a different take depending on what side of the AT&T-Mo battle lines they stood and their relative position in the mobile market. Here’s our take on who would win and who would lose:

AT&T: Back to the status quo, though with a few bruises

It may seem obvious that AT&T loses if its blockbuster acquisition fails, but AT&T isn’t as bad off as it claims. It would still be the country’s second largest operator in terms of total retail subscribers and mobile connections, and a big gap would still remain between itself and the next largest competitor Sprint. It still has every flavor of the iPhone still sold and still maintains a big advantage when it comes to new devices since it plays nicely with the dominant global GSM standard.

AT&T wouldn’t be able to piece together the massive 20 MHz-by-20 MHz LTE juggernaut it hoped to gain with T-Mobile’s Advanced Wireless Service (AWS) spectrum, but it’s still fairly well off spectrum-wise. Unlike Verizon Wireless, AT&T doesn’t have a uniform hunk of 700 MHz nationwide. It will have to put its LTE network together from the various AWS and 700 MHz licenses it holds around the country. But while Ma Bell may have lost out on T-Mobile’s spectrum goldmine, the FCC looks set to approve its purchase of Qualcomm’s 700 MHz licenses. Once LTE-Advanced comes along, AT&T can use new carrier-aggregation technology to shoehorn all of those disparate bands into one big network. That will put it in much the same position as Verizon, either forced to go get new licenses at auction, through smaller acquisitions or by re-farming its PCS and cellular frequencies for LTE.

The most lasting damage from the merger fallout to AT&T may be in public perception. In the last year, AT&T has become synonymous with the greedy expansionist corporation, whether it’s a fair criticism or not. Even if it decided to cut its losses and withdraw its merger petition completely, Ma Bell may not escape without incurring a few more bruises. Public Knowledge and the Media Access Project want the government to go in for the kill, petitioning the FCC to deny AT&T’s request to withdraw its merger petition. The two consumer interest groups argue that AT&T is gaming the system, withdrawing from a review process that could hurt its chances in the DOJ’s antitrust lawsuit. But Public Knowledge and MAP also want an evidentiary hearing, which would effectively air all of the deal’s dirty laundry.

T-Mobile: A carrier still in need of a new network

Image of T-Mobile lanyards courtesy of Flickr user Stefan Evertz.T-Mobile could come out of this smelling slightly sweeter than when it started. A failed acquisition means a big $3 billion payout for DT as well as the handover of $3 billion worth of spectrum to T-Mobile. That spectrum probably won’t be enough to launch a nationwide LTE network (if it were, AT&T wouldn’t need to buy T-Mobile’s spectrum,) but assuming AT&T does fork over some of its own AWS holdings, T-Mobile could build upon it to become a much stronger mobile broadband player, Current Analysis research director Peter Jarich said in an interview.

“T-Mobile could say ‘let’s double up on AWS,’” Jarich said. “’We get AWS from AT&T. Let’s spend that payout on more AWS licenses at auction. Then let’s use it to build a new network.’”

But that new network might not necessarily be an LTE one. If T-Mobile could only piece together new licenses in bits and pieces, it might be better off allotting that capacity to its current HSPA+ network, Jarich said. Only if it could clear out a sizable chunk of AWS nationwide would it make sense to launch LTE. Even then, it depends on the size of the chunk. If it can only launch LTE in a 5 MHz-by-5 MHz configuration—half the size of Verizon’s network—it gains very little in overall capacity. Why deploy two mediocre mobile broadband networks when you can deploy a single massive one?

Ultimately, T-Mobile’s decision may come down to DT’s future plans for its U.S. arm, Jarich said. If DT wants to pretty up the company for another potential acquisition or partnership, then keeping with HSPA+ would be the way to go. If DT believes that T-Mobile USA can make it on its own, Jarich said, then it must bite the bullet and get an LTE network built.

The Other Guys: It’s a toss-up

As I wrote about last week, Verizon’s position on the merger is complicated. The last thing Big Red wants is a merger to pass loaded down with regulatory requirements that will bite it in the rear when Verizon looks to consolidate its own spectrum position in the future. If the AT&T-Mo merger just disappeared, Verizon would be happy: no new regulations on the wireless industry, no definitive decision to deny the mega-merger, no harm, no foul.

Sprint, of course, would celebrate the failure of AT&T-Mo, but ironically it might have actually benefited if the merger went through. T-Mobile is Sprint’s biggest threat as its business model evolves to focus on prepaid and budget-minded customer segments. Sprint would be safe from the wireless duopoly it so feared, but it would have also missed an opportunity to lock down the low-end of the market that neither Verizon nor AT&T serves well.

MetroPCS and Leap Wireless would miss out on their biggest opportunity to expand for some time. Any AT&T deal with the FCC or DOJ would have required massive divestitures of markets and spectrum, all of which Metro and Leap could have picked up to either expand their footprints or add capacity to their CDMA and LTE networks. Also, Metro and Leap may have been secretly hoping that the deal had gone through. Both could have picked off T-Mobile’s former customers as AT&T delved into a long integration process.

Image of boxing winner courtesy of Flickr user superwebdeveloper

Image of T-Mobile lanyards courtesy of Flickr user Stefan Evertz.

Image of Verizon cone courtesy of (CC BY 2.0) Flickr user slgckgc

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