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Not long ago, I wrote a piece speculating on what T-Mobile would do if the AT&T deal fell apart.
Well, looks like “if” has come true. So I thought I’d go back to some highlights from the earlier post.
By itself, T-Mobile is a wireless operator struggling to keep its best customers from leaving. Over the past several months, the carrier has aggressively cut prices and made itself a haven for bargain seekers–all for the sake of sparking a little growth. As a result, it resembles a large prepaid carrier more than one of the traditional national players.
But with the promised breakup fee from AT&T if the deal wasn’t approved–including $3 billion, plus spectrum and roaming agreements with AT&T–T-Mobile could be coming into some cash. And that cash comes with some options.
One such option is going it alone:
T-Mobile’s parent, Deutsche Telekom AG, hasn’t been subtle about its intentions to dump the U.S. market, but maybe a $3 billion cash infusion would change its mind.
“The breakup fee could give Deutsche Telekom some incentive to do something,” said Chris Lemley, a professor at Georgia State University’s business school.
In the meantime, T-Mobile will likely continue to act as the low-cost option for consumers. While the other carriers are busy building out more advanced 4G networks, boast stronger phone lineups that include the Apple iPhone, and have more marketing and service resources to employ, T-Mobile can compete only on price. Having lost a lot of high-value contract customers, the carrier is expected to continue its path of pushing its prepaid service, analysts say.
“Whether they can stabilize their business, we’ll see,” said Walter Piecyk, an analyst at BTIG Research, noting that the recent actions have helped improve some of its customer trends.
Of course, with $3 billion in cash, the company could consider a number of acquisitions, shoring up its competitive position and potentially making itself more attractive to other buyers.
DT could decide to put that $3 billion fee to work on potential acquisitions. T-Mobile could expand its prepaid presence by scooping up regional players such as MetroPCS or Leap Wireless, although both of the smaller companies use differing wireless technology.
More likely, T-Mobile could seek more wireless spectrum. The carrier currently lacks sufficient spectrum to move to 4G LTE, and DT has shown a reluctance to spend for that resource. The company could hope for more spectrum to be auctioned off by the government, or pursue an acquisition.
Even if it doesn’t use the spectrum, having the extra assets could be valuable if T-Mobile were to look to sell itself again.
I also noted that Dish could be a potential partner, and apparently the satellite-TV company agrees. Dish’s CEO said earlier this month that he would be open to a partnership with T-Mobile to create a stronger competitor to AT&T and Verizon.
The company could also look at Dish Network, which has been slowly amassing a nationwide swath of spectrum. While Dish has a plan to build an LTE network, it could be willing to part with it or partner with T-Mobile.
If T-Mobile can’t hook up with AT&T, why not go after eager partner Sprint Nextel? That’s another possible scenario, though given the opposition AT&T faced, it’s unclear whether Sprint would have an easier time pursuing a deal.
This scenario has a lot of fans on Wall Street. But given the regulatory scrutiny that the AT&T deal is facing, it’s increasingly unlikely that the government would approve this combination. While Wall Street sees a combination between two weak players as good for the industry, regulators may be concerned that the merger of two low-cost providers may mean higher prices in general.
There are a number of other obstacles as well. Sprint Nextel and T-Mobile run on differing wireless technologies, requiring one to change over to the other. While Sprint has the ability to handle multiple wireless technologies with its planned network upgrade, that remains a major issue as the two sides attempt to reconcile their differences.
Sprint is low on cash and in no position to buy T-Mobile, so the deal would be structured as a merger of equals, with Deutsche Telekom taking a large–possibly majority–stake in the combined company. For Deutsche Telekom, that may not even be worth the trouble.
“It would be a smaller shareholder in a much larger and more complicated company,” Piecyk said. “Is that an ideal scenario?”
With Deutsche Telekom reluctant to commit to T-Mobile USA, I posited that it could be time for another parent company to step up.
Deutsche Telekom could attempt to sell T-Mobile to another major global wireless provider looking to get into the U.S. business.
“There are a lot of players Deutsche Telekom could sell it to,” Lemley said. “It could get T-mobile access to new capital.”
One potential buyer could be China Telecom. Earlier this month, the head of its Americas business told Bloomberg that it would start selling wireless service under its own brand next year. He also signaled a willingness by the company to buy its own wireless network.
Though given the U.S. government’s past attitude toward Chinese-American deals, it’s unclear whether such an acquisition would go through unscathed. Regulators have squashed smaller attempts by Chinese companies to acquire U.S. businesses, and a critical asset such as T-Mobile would easily find itself in the crosshairs of politicians.
The last option I highlighted–a deal with the cable providers–is no longer possible with cable hopping into bed with Verizon. Verizon at once shored up its own spectrum position while shutting out another avenue for its competitors.
T-Mobile could find allies in the cable providers, which have traditionally worked with Sprint Nextel. The cable companies are sitting on their own war chest of spectrum that fits perfectly with T-Mobile’s own assets.
The cable companies, meanwhile, would get access to another wireless service provider and guard against the risk of Clearwire and Sprint dropping the ball on their 4G LTE deployment. Their current agreement with Clearwire has been an “utter debacle,” Moffett said.
Which is why the cable providers and T-Mobile would fit nicely together.
Or not.
