Nobody likes uncertainty heading into two of the most important months of the mobile calendar: the December holiday shopping season and the January presentation of new ideas and new products at CES in Las Vegas. Two of the biggest wireless carriers in the U.S.–AT&T (NYSE: T) and T-Mobile–are staring at huge clouds over the next two months before the U.S. Department of Justice considers whether to allow the controversial deal to pass.
A sure sign you’ve got bad news to distribute? Announce it in the wee hours of the morning before one of the largest U.S. holidays of the year. AT&T’s Thanksgiving surprise that it would withdraw its application to purchase T-Mobile’s wireless licenses after the FCC said it planned to refer the matter for further review is the clearest sign yet that the controversial merger is on thin ice.
What’s worse is that AT&T’s move seems designed to avoid having the contents of the documents it filed with the FCC in support of the proposed merger become public, according to the New York Times. FCC commissioners left no doubt last Tuesday that they believe the deal would work against the public interest, going so far as to say the FCC had never seen anything like the proposed deal and that they were definitely unconvinced by AT&T’s arguments that the deal would increase the number of Americans who could access high-speed Internet services as well as create jobs at a time of high unemployment.
One of those documents emerged earlier this year, showing that AT&T’s own internal analysis concluding that it cost $3.8 billion to build a 4G LTE network that would reach 97 percent of the U.S. That’s not pocket change, but it blows up AT&T’s argument that the only way it could build a comparable network would be to spend $39 billion to buy T-Mobile.
Last week’s move means that AT&T will put all of its eggs in the DOJ’s basket during the February trial over the proposed merger, and given that the DOJ is considering the same evidence that the FCC found distasteful, it’s hard to imagine how AT&T can prevail at trial. AT&T can resubmit the application to the FCC should it prevail over the DOJ, but it’s harder and harder to imagine how that might happen if AT&T feels the evidence supporting its proposed merger is too iffy to be made public.
AT&T may be planning to make huge divestitures in order to salvage something of the T-Mobile deal, according to a report from Bloomberg. That means it might not get as large as it had once hoped and could give smaller carriers a leg up in certain geographies, but it’s tough to know at this stage just how broad a sell-off AT&T would have to contemplate in order to get government approval: at some point, it may not be worth the money.
So where does that leave us?
AT&T: The company is still making money and getting access to top-tier smartphones, so despite the fact that the merger may not go through and give AT&T even bigger scale, AT&T will live to fight for years.
The broader question, however, is whether or not the company has a Plan B to try and catch up to rivals such as Verizon, who have been much more aggressive rolling out 4G LTE networks (as opposed to AT&T’s “other” 4G network). AT&T’s size and relationship with Apple means it will be a player in wireless for a long time, but failure to complete the T-Mobile deal means it may have to compete for customer growth the old-fashioned way: with good smartphones, network reliability, and customer service.
Over the last five years, it’s only been good at the first item on that list.
T-Mobile: T-Mobile and its parent Deutsche Telekom are staring at a far bleaker future should the merger not survive government review. T-Mobile is having a hard time hanging onto its customers despite a good relationship with Google and Android partners in part because of one conspicuously absent smartphone: the iPhone.
And it’s unlikely that T-Mobile and its parent are willing or able to pay as dearly as Sprint did in order to win the right to offer its customers the device. Couple that with the increasing reliability that a brand-new Android smartphone will launch on Verizon’s network–given an equally strong relationship with Google at the nation’s largest wireless carrier–and T-Mobile is in trouble.
In any event, the February trial could be the most interesting antitrust case in a generation in the tech industry, and one that will have a huge impact on the future of the mobile world. By pulling back from the FCC in such slinky fashion and by taking the charge for the break-up fee with the outcome still in doubt, AT&T has shown that its chances of convincing the world that it needs T-Mobile for altruistic reasons are slim.