AT&T Inc.
's (
T
) proposed $39 billion purchase of Deutsche Telekom's unit,
T-Mobile USA, is facing another setback following opposition from
the Federal Communications Commission (FCC).
Earlier in August, the Department of Justice blocked the
proposed merger and filed an antitrust lawsuit with the U.S.
District Court in Washington. The trial is expected to start on
February 13. Now, the FCC is seeking to send the proposal to the
administrative law judge for hearing, which is expected to start
after the completion of the trial.
According to the FCC, the combination of the second and fourth
wireless operators will create America's largest mobile phone
company surpassing the present leader, Verizon Wireless, a joint
venture of
Verizon Communications Inc.
(
VZ
) and
Vodafone Group Plc
(
VOD
). The deal could also mellow down innovation and investments in
the industry and eventually affect customers.
Further, the proposed transaction would create a duopoly market
for the U.S. wireless industry apart from flaring up prices and
layoff issues. It would also stifle competition and make
AT&T and Verizon Wireless the only two dominant players in the
industry, controlling almost 80% of the U.S. wireless post-paid
market. Moreover, the FCC is not convinced with AT&T's
assertion that the transaction would result in the faster rollout
of a high-speed 4G network.
The proposed AT&T/T-Mobile merger hearings remind us of the
DirecTV Inc.
(
DTV
) and
EchoStar Corp.
(
SATS
) merger trials that hit headlines almost a decade ago. Finally,
the EchoStar-DirecTV deal was called off.
The recent move by FCC has raised doubts about the consummation
of the AT&T/T-Mobile merger.
In fact, even the third-largest U.S. wireless carrier
Sprint Nextel Corp.
(
S
) has opposed to this merger. We see this as an obvious reaction as
the combined company would be almost three times that of
Sprint.
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
) remain unclear. The combination might put pressure on these
carriers to purchase more spectrums for future broadband networks.
These companies will not be able to outbid bigger competitors in
spectrum auctions and business partnerships as the merger would
make deals and contracts more expensive.
AT&T seems disappointed by the FCC action. The telecom ace
was looking to close the deal in the first quarter of 2012.
While we await the final decision on this much-hyped merger, 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).
DIRECTV (
DTV
): Free Stock Analysis Report
LEAP WIRELESS (
LEAP
): Free Stock Analysis Report
METROPCS COMMUN (
PCS
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
ECHOSTAR CORP (
SATS
): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
US CELLULAR (USM): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis
Report
VERIZON COMM (VZ): Free Stock Analysis Report
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