Monday, November 28, 2011

T-Mobile USA is the same without AT&T

Things are getting tougher for AT&T and T-Mobile. Well, tougher for AT&T. Recently AT&T pulled their application to purchase T-Mobile USA due to increased resistance from the FCC and DOJ. Now that analysts are giving the deal only a 10% chance of being completed statements about T-Mobile's "dire situation" are beginning to surface. As the AT&T-Mobile deal falls apart I have to ask myself, what does the future look like for T-Mobile?

To start, what was really different for T-Mobile if AT&T successfully bought them? For T-Mobile it still meant they they would cease to exist as their own company. It's Deutsche Telekom, T-Mobile's current owner, that has the most to gain from the deal.

T-Mobile is the nation's fourth largest carrier with just over 30 million subscribers. While it's ranked as a nationwide provider it does not have any real growth options. There are plenty of regional carriers that T-Mobile could purchase to bolster their subscriber base and infrastructure, except there's one problem, most are CDMA based while T-Mobile is GSM based. It's not impossible for them to purchase a company with incompatible technology it just doesn't have the same benefits of a classic telco merger while being more expensive.

So there's no real turn around opportunity for T-Mobile which is why DT found a suitor to take the fledgeling company. AT&T has claimed that they are in desperate need of more spectrum to handle their increasing network traffic which is supposedly what prompted the deal to buy T-Mobile. On top of giving AT&T the spectrum it desired it would also allow them to take the title of "The Nation's Largest Carrier" from Verizon.

On top of paying a premium for T-Mobile, AT&T agreed to pay a 3 billion dollar fee if the deal didn't go through with close to 3 billion dollars worth of assets and roaming agreements to T-Mobile. The big winner was DT who was getting market value for what was losing them money.

Now as AT&T is scrambling to salvage the deal many are speculating what will happen to T-Mobile. It hasn't changed, T-Mobile will be sold. The only thing that has changed is what DT can get for the carrier that once sported Catherine Zeta Jones as it's spokesperson.

The termination fee (kind of ironic if you think about it) that AT&T has to pay won't really change things. There's no valuable regional GSM carrier for T-Mobile to buy. They could invest in their network or purchase/lease spectrum from another company but this would require time for them to turn things around. Granted the $3 billion gives them time but it doesn't hold off the inevitable.

The one option that's not likely is all out bankruptcy. What will probably happen if AT&T can't get approval is T-Mobile gets purchased by a private equity fund. The same happened to Alltel in 2007. TPG Capital and GS Capital Partners, a division of Goldman Sachs purchased Alltel for $27 billion. Valuable parts of Alltel were sold off and the remaining entity which still included an infrastructure and subscriber base were sold to Verizon Wireless.

It will be a while before something like this happen to T-Mobile especially after an injection of almost $6 billion. T-Mobile is in the twilight of it's existence with an end that will happen not with a bang but rather a whimper.


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