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If the AT&T deal fails, what’s next for T-Mobile?

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AT&T’s (s t) $39 billion bid for T-Mobile USA isn’t over with the Department of Justice’s decision to file suit against the merger. But it raises a lot of new uncertainty around the deal and the possibility that it might not go through at all.

So what happens to T-Mo if AT&T’s can’t buy it? Here are some thoughts on possible outcomes:

T-Mobile goes it alone. With the infusion of $3 billion in a break-up fee from AT&T as well as added spectrum, T-Mobile might give it another go as a standalone network and upgrade to LTE. It’s unclear what spectrum would be handed over and if it would be enough to build out an LTE network. But Reuters (s tri) has previously reported that the spectrum would be worth $2 billion, while a roaming agreement for T-Mobile would also be valued at $1 billion. It’s unclear if all that would be enough for Deutsche Telekom to change its mind. T-Mobile’s parent company sounded pretty disappointed that the $39 billion deal didn’t go through, but the break-up fee could help keep T-Mobile in the game for longer now.

Sprint (s s) could make a play to merge with T-Mobile. It would have to scrounge up a lot of cash, arguably more than it has. The company has about $4 billion in cash on hand and $900 million in borrowing capacity, but it faces a $2.3 billion debt due by March and a network-modernization project that will cost at least $4 billion over the next three to five years. But if it could get the deal done, Sprint could move from a distant third into a respectable rival at the top of the cellular market. The language of the DOJ suit suggests that Sprint may face similar opposition if it tries to go after T-Mobile but even a combined Sprint/T-Mobile wouldn’t rise to the level of a No. 2 carrier. Of course, Sprint would still have to figure out its spectrum issues with LightSquared and Clearwire (s clwr). And after the nightmare of merging with Nextel, the hefty integration work for Sprint, which uses CDMA as compared to T-Mobile’s GSM technology, could also kill any deal.

T-Mobile could end up being an appealing pick-up for one or more cable companies. The cable companies have come together in the past with Clearwire and Sprint to offer wireless service, and they could band together again to buy T-Mobile. This would give them a more credible wireless play as traditional telcos like AT&T and Verizon (s vz) move into the TV business. And they’ve got some wireless spectrum assets of their own. It’s still a tall order, but it makes sense if the cable companies can come to an agreement.

A private equity firm could look at taking on T-Mobile. A PE firm could try to run T-Mo themselves, perhaps for a few years while they search for a buyer. Or they could look at selling off the assets if no single buyer emerges. Again, this is another stretch, but there may be some firms that think they could make T-Mobile into a winner, or at least more valuable for sale.

Deutsche Telekom could sell off T-Mobile in parts. DT could just cut out the private equity middleman and start selling off the pieces of T-Mobile. It probably wouldn’t fetch the $39 billion AT&T was willing to shell out, but it could still be a lucrative exit out of the American market. It would probably depend on how much interest DT receives in T-Mobile from any other suitors.

We’ll be talking more about the carrier situation at our GigaOM Mobilize Conference on Sept. 26-27 in San Francisco.

8 Responses to “If the AT&T deal fails, what’s next for T-Mobile?”

  1. Uncertainty is killing the T-Mobile business and employee moral while this plays out in the courts. Ultimately I think it will be blocked and ATT will have to payout the termination fee. After that T-Mobile will be tainted and worth considerably less than $39B. I imagine a merger with MetroPCS and Leap over the next few years. These “value” providers need each other to reach larger scale, and deployment of LTE. The FCC and DOJ won’t give as much grief about merging.

  2. Eric Schatz

    You know who should link up with T-Mobile? Who’s more desperate than US Postal Service to get into electronic communications? Turn USPS offices into T-Mobile retailers. Sell phone cards next to shipping tape. Paygo phones out of a vending machine. Structure the deal as T-Mobile buying USPS with an IPO to clear the $8billion debt. Acquire USPS for net 44 cents.

  3. I believe this isn’t so much about acquiring market share as it is about acquiring T-Mobile’s network from DT. Specifically, the rights to T-Mobile’s wireless facilities in urban areas.

    In recent comments to the FCC (docket 11-59) regarding wireless facilities sittings (read: antennas), as well as broadband in public rights-of-way, several wireless providers were very forthright in stating many municipalities (and some states) are doing everything in their power to delay or outright deny capacity build-outs. AT&T was one of these who was very forthright in the troubles they’ve faced, and named names. All the comments make for fine reading,and would make a good movie–everything from foot dragging to bureaucracy at its finest to alleged out-and-out extortion.

    The acquisition of T-Mobile would give AT&T access to a plethora pre-existing wireless antennas in several urban locations without the pain and cost of going through the site selection/approval process.

    As for what happens now, I think Yogi Berra said it best: “It ain’t over ’till it’s over.” And this isn’t over by a long-shot. AT&T is one of those corporations which does have the resources to fight this in court–and, just as importantly, to lobby Congress.

    The question is the depth of AT&T’s desire to pursue this.

  4. Scott Wharton

    What about another International mobile operator buying T-mo? There are a bunch of big mobile operators that would probably like the prestige of operating in the US market.

  5. Brian Ward

    I think T-Mobile might be sitting pretty, actually. They have a 4G network that is the 2nd largest (or is it 1st?) if they get the iPhone. I think this is really the big reason AT&T wanted to buy them. To get their already-in-place/process 4G network. Verizon has been going like gangbusters with theirs while AT&T has been languishing, by comparison. I am thinking the a 4G iPhone is why Verizon has been going like such gangbusters.

  6. Apple, Google, and Microsoft (and maybe some cable companies) could chip in and buy it from DT, get it organized to be an open network (lets users run VoIP on their 3G/4G connections, unbundles service from devices, and generally stops all of the anti-customer nonsense that ATT and Verizon force down their customers throats), and then spin it off as a publicly traded company, where they all compete on a level playing field.