After many twists and turns, the
AT&T Inc.
(
T
) and T-Mobile merger story finally reached in its last chapter,
but with an unsuccessful ending. Following a nine-month fight to
win approvals, the second largest U.S. wireless service provider
dropped its $39 billion bid to purchase T-Mobile USA.
The move came a few weeks after AT&T withdrew its
application from the Department of Justice (DoJ) following heavy
regulatory attacks. The DoJ in August and the Federal
Communications Commission in November blocked the proposed takeover
citing concerns relating to unfair competition, layoffs, higher
prices, lower innovation and investments in the industry. According
to the regulators, the combination would have created a duopoly
market for the U.S. wireless industry, giving AT&T and
Verizon Communications Inc.
(
VZ
) almost 80% control over the U.S. wireless post-paid market.
In fact, even the third-largest U.S. wireless carrier
Sprint Nextel Corp.
(
S
) had opposed to this merger. This was an obvious reaction as the
combined company would be almost three times that of Sprint and
consequently hurt its profitability. The failed deal comes as a
respite for its turning post-paid wireless business.
Furthermore, the effects of the merger on smaller and lower-cost
wireless carriers like
MetroPCS Communications Inc.
(
PCS
),
United States Cellular Corporation
(
USM
) and
Leap Wireless International Inc.
(
LEAP
) was unclear. While the combination would have put pressure on
these carriers to purchase more spectrums for future broadband
networks, it would have also made deals and contracts more
expensive and therefore impossible for the smaller players to
outbid bigger competitors in spectrum auctions and business
partnerships.
With the termination of the deal, AT&T's hopes of becoming
the largest U.S. wireless carrier, dethroning Verizon are
shattered. The company was in need for additional airwaves to
expand its advanced high-speed 4G services given its exponential
growth in mobile broadband traffic. Already criticized for dropped
calls and poor network coverage, AT&T will face more
constraints in its capacity deployment than Verizon, no doubt
hurting subscriber growth. Moreover, AT&T might lower its
profit forecast for the next year as it had already assumed
merger-related benefits and spending.
The collapse is no less a loss for T-Mobile. The fourth wireless
operator will again have to struggle to deploy high-speed services
in an intensely competitive environment. Since T-Mobile does not
have substantial spectrum to deploy its 4G services and is
continuously losing money, its parent company Deutsche Telekom is
seeking another buyer.
AT&T agreed to pay T-Mobile $3 billion in cash and $1
billion for spectrum access for dropping the deal. As a result, the
company will take a $4 billion charge in the fourth quarter against
its takeover. AT&T and T-Mobile nevertheless has entered into
the roaming agreement to sell each other's product and
services.
Announced in March, this was the largest takeover plan in the
wireless industry since 2004.
We prefer to maintain our long-term Neutral recommendation on
AT&T. The company retains the Zacks #3 (Hold) Rank for the
short term (1-3 months).
LEAP WIRELESS (
LEAP
): Free Stock Analysis Report
METROPCS COMMUN (
PCS
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
US CELLULAR (
USM
): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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