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AT&T finally ditched its plan to buy T-Mobile USA for $39 billion on Monday, after months of intense lobbying.
AT&T blamed regulators for the deal’s demise, and the company said in a statement that consumers would be harmed and investment would be stifled as a result. Meanwhile, the U.S. Department of Justice and the Federal Communications Commission–the two agencies that opposed the deal–said that AT&T’s decision to abandon its purchase was a victory for consumers.
“Consumers won today,” Acting Assistant Attorney General for the Antitrust Division Sharis A. Pozen said in a statement. “Had AT&T acquired T-Mobile, consumers in the wireless marketplace would have faced higher prices and reduced innovation. We sued to protect consumers who rely on competition in this important industry. With the parties’ abandonment, we achieved that result.”
Consumer groups also praised AT&T’s decision to give up. But what does all of this really mean for consumers? CNET put together this FAQ to answer that question.
What did AT&T actually decide to do?
AT&T said that it would not continue to pursue the $39 billion merger of T-Mobile USA, which it announced in March. As part of the break-up with Deutsche Telekom, T-Mobile’s parent company, it will have to pay a fee of $3 billion in cash to Deutsche Telekom as well as provide $1 billion in wireless assets.
The Justice Department had filed its lawsuit against AT&T to block the merger in August, stating it would harm competition and result in higher prices for consumers. And the Federal Communications Commission, which needed to give its approval to transfer T-Mobile’s wireless licenses, also opposed the merger. AT&T withdrew its application to the FCC in November. And last week it asked a federal judge to stop the legal proceedings so it could figure out if it wanted to go to trial in mid-February.
On Monday, AT&T ended its pursuit to buy T-Mobile. So there will be no trial in February. The merger is dead.
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What’s likely to happen to T-mobile now?
That’s the big unanswered question. T-Mobile’s parent company Deutsche Telekom has made it clear that it’s not interested in sinking more money into the U.S. wireless market. So it’s unclear what Deutsche Telekom will do next. It could look for another buyer.
Smaller prepaid companies, Leap Wireless or MetroPCS, may be interested in buying, some if not all, of T-Mobile’s assets. There’s also talk of satellite TV provider Dish Network buying T-Mobile’s assets. The company has already been buying wireless spectrum. Anyone of these carriers could buy the company outright or they Deutsche Telekom could break up T-Mobile into smaller pieces and sell it that way.
Another scenario is that T-Mobile may partner with other companies. Even though AT&T has decided not to pursue its meger with T-Mobile, it could still form a partnership. In its press release, AT&T said that it has entered into a mutually beneficial roaming agreement. It’s unclear what that roaming arrangement entails. One possibility is that AT&T could create a joint venture with T-Mobile. This would be a separate company from AT&T, but might give AT&T more access to T-Mobile’s network.
There is also a chance that Deutsche Telekom may spin off T-Mobile as its own company in an initial public offering. The company will be getting about $3 billion in cash from AT&T as part of the break-up fee. And it will also get about $1 billion in other assets as part of the settlement.
I’m a T-Mobile customer so what does all this mean for me?
Initially, it won’t mean much. T-Mobile has still been operating as an independent company since the AT&T merger was announced in March. So in the short-term, I’d expect T-Mobile to continue to compete aggressively, especially for budget-conscious consumers.
As I explained above, it’s unclear what T-Mobile’s future will be. So I can’t say for certain whether the company will continue to operate as an independent wireless provider. That said, it will take some time to work out other deals. And then once a new deal or deals are signed and sealed, it will take time to execute those plans. This means that any major changes to T-Mobile’s network or services are still several months away.
What’s this mean for AT&T?
AT&T needs more wireless spectrum and capacity in the future to handle its existing and new customers demanding more data services. AT&T is rolling out its 4G LTE wireless network. And I expect it will continue to deploy that network.
AT&T claimed as part of its justification for buying T-Mobile that it needed the T-Mobile wireless assets to bring the 4G LTE network to more users. So it will be interesting to see if AT&T is able to expand that network without T-Mobile’s assets. My guess is that it will. AT&T is feeling the competitive pressure from Verizon Wireless, which will have its 4G LTE service in 190 markets by the end of this year, covering more than 200 million potential customers.
In order to keep up with all this demand for capacity, AT&T is going to need get more spectrum. If T-Mobile is out of the picture, where will it get it?
AT&T has already been buying up spectrum licenses from other companies that aren’t using them. And I believe it will continue that strategy. The FCC seems to think this approach is a good idea. It’s already offered its support to AT&T’s plans to buy spectrum in the 700MHz band from Qualcomm.
That said, it will be a battle to get more spectrum. AT&T’s biggest rival Verizon Wireless is also on the hunt for more spectrum. Earlier this month, Verizon announced it plans to spend more than $3.6 billion to buy spectrum from several cable companies, including Comcast, Time Warner Cable, and Cox Communications.
AT&T may also find a way to partner with other companies that have spectrum it needs. There could be some very interesting network-sharing deals that form as a result of AT&T abandoning its plans to buy T-Mobile.
Will my phone bill go up or down as a result of this?
Honestly, AT&T and T-Mobile subscribers will likely not see any changes to their cell phone rates or service anytime soon. T-Mobile may try to get more aggressive on pricing. But that’s a slippery slope considering that it’s still losing customers.
Meanwhile, AT&T customers should not expect to see their tiered service plans going away anytime soon. If anything, AT&T could increase pricing on its data service for its heaviest users.
That said, over time, prices for data services will likely fall across the industry as they have with voice services. This may have happened even with the merger, since as AT&T argued prices for voice service fell in spite of industry consolidation over the past several years.
Still, even though the price per megabit may fall, consumers’ overall wireless bills may remain high. Why? AT&T and other wireless carriers are likely to bundle more services in packages and charge higher prices. Consumers may get more bang for their buck, but AT&T and others could still rake in more revenue. At any rate, I don’t expect any big changes in pricing anytime soon.
I’m an AT&T customer. Will the quality of my service be improved or will it suffer?
AT&T has been working hard to improve the quality of its network even before the merger was announced. Specifically, it’s been adding more cell sites and capacity in dense urban areas, such as New York City. It’s been relying more on Wi-Fi to offload traffic in these areas too as another way to alleviate congestion. So my guess, is that the company will continue these efforts. And hopefully, it can improve service. If it can’t, customers are likely to look elsewhere.
AT&T is blaming regulators for the deal falling through. And the company says that without this merger consumers will suffer. Should I be annoyed at the government for their involvement, or did they do me a favor?
This is a tricky question to answer because we don’t know yet what T-Mobile’s fate will be. In the short term, the FCC and the Justice Department preserved another major competitor in the market. For consumers that’s usually a good thing.
If AT&T had been allowed to gobble up T-Mobile, it would have created the largest wireless phone company in the nation. AT&T and Verizon Wireless already account for more than 40 percent of wireless users in the U.S. And once T-Mobile was out of the picture, AT&T would have had an even deeper concentration of power.
But the truth is that AT&T and Verizon are still very powerful. They are each adding customers every quarter, while T-Mobile loses customers. Sprint Nextel, the third largest wireless operator, is much smaller than AT&T and Verizon, but it’s done a good job of turning itself around the last couple of years. It’s growing again. But there’s still a big question mark around whether Sprint can truly compete against AT&T and Verizon.
The other thing to remember is that T-Mobile is in trouble. That’s why Deutsche Telekom wants to get rid of it. It doesn’t have enough spectrum to make a transition on its own to 4G LTE technology. And as I’ve said before it’s been steadily losing customers. And there isn’t any data to suggest that this blood-letting will stop anytime soon.
T-Mobile has been pigeon-holed into the role as a value player. Because it is smaller and weaker than the other carriers, it doesn’t have the cash or the clout to offer exclusive, high-end smartphones like its competitors to attract new customers. For example, it’s now the only major U.S. carrier without the Apple iPhone. It’s also selling the cheaper version of Nokia’s Lumia Windows Phone instead of the higher-end model. And one of the only high-end Android phone it has on its roster is the Samsung Galaxy II, which is offered on the other three carrier networks as well.
Despite regulators efforts, T-Mobile may not survive as a fourth competitor anyway. And there is nothing that the Justice Department or the FCC can do about that. That said, I think the hope is that by preventing AT&T from buying T-Mobile, it will allow someone else to buy the company’s assets. And this other player could take the spot as a fourth national competitor.
But as I recall, before the AT&T merger was announced, no one was beating down T-Mobile’s door to get their hands on the company. The only carrier that expressed interest in T-Mobile was Sprint. And that’s an unlikely match-up given the reasoning behind regulators’ opposition to AT&T’s merger with T-Mobile.
Perhaps, now T-Mobile will look more attractive to other players looking for spectrum. But even if and when T-Mobile gets sold, it’s uncertain whether the company that ends up with T-Mobile’s business is able to build a company strong enough to compete against AT&T and Verizon. Building and running a wireless network is expensive, just ask Clearwire.
So even though regulators may have prevented AT&T from buying T-Mobile, consumers may still eventually end up with only two choices for nationwide wireless service.
