Looking at the Possible AT&T / T-Mobile Merger

By Stephen Fuchs on Email @StephenWFuchs

There has been a lot of talk going on about the recently filed lawsuit by the Department of Justice against the possible AT&T / T-Mobile USA merger.  T-Mobile USA is the American division of the Bonn, Germany based Deutsche Telekom.  The main concern being presented by the Department of Justice (DOJ) is that the merger would create higher prices, less competition, and lower quality mobile wireless products in the United States.  As it stands right now, there are four major nationwide wireless providers in the US… Verizon, AT&T, Sprint, and T-Mobile as well as many smaller regional carriers.  AT&T believes that by buying T-Mobile USA it would help make it possible to build out broader LTE coverage more quickly and reach 97% of the American population with the latest wireless technology.  The DOJ and rival carrier Sprint see’s more of a negative future if the acquisition goes through.

The Rise and Fall of T-Mobile USA

Deutsche Telekom entered the US Wireless market in 2001 when it completed its acquisition of the regional carriers VoiceStream Wireless Corporation and Powertel, Inc.  T-Mobile USA quickly grew it’s business to eventually become a major player as a national carrier and take 4th place behind Sprint by offering low prices, new technology, and quality customer service.  With 33.73 million customers and $21.35 billion in annual revenues in 2010, T-Mobile looks like a successful player in the wireless market.  Unfortunately that is not the case.

After missing out on the chance to carry the iPhone in 2007, T-Mobile began losing a large amount of its contract customers.  In 2010, contract customers dropped to 78% of subscribers compared to the 85% it saw in 2006 before the arrival of the iPhone on AT&T’s network.  Out of the four major wireless carriers, T-Mobile is the only one to suffer a loss in customers last year.  This continued drop has made it difficult for the company to invest in the needed network upgrades and resulted in Deutsche Telekom making the decision to sell the US subsidiary.

Sprint Begins Merger Talks with Deutsche Telekom

On March 8, 2011, Bloomberg broke the news that Sprint was in talks with Deutsche Telekom to buy T-Mobile USA.  It was reported that the two companies were talking back and forth but an agreement on the valuation of T-Mobile USA couldn’t be agreed upon.  Michael Kovacocy, an analyst at Evolution Securities in London stated that Deutsche Telekom is “selling from a weak position in the marketplace… The operations could fetch well south of $20 billion, well below what DTE would look for.”  If Sprint was to buy T-Mobile, its subscriber base would jump to around 86 million which would still place the company in 3rd place behind Verizon and AT&T.

AT&T and Deutsche Telekom Reach an Agreement

Just days after the news broke about the potential sale of T-Mobile to Sprint, AT&T announced on March 20, 2011 that it had reached an agreement with Deutsche Telekom to buy T-Mobile USA for $39 billion.  If approved, the purchase would make AT&T the largest US wireless carrier with nearly 130 million customers.  Sprint quickly spoke out against the proposed merger by taking out large print ads in the major US newspapers and magazines drumming up the value of competition.

On August 31, 2011, the US Department of Justice filed an antitrust complaint against AT&T and Deutsche Telekom, seeking to block the merger.  The DOJ believes that competition would be greatly reduced if the US consumer only had three major carriers to choose from instead of the current four.  Sprint applauded the DOJ for their decision stating that the decision would “ensure that consumers continue to reap the benefits of a competitive U.S. wireless industry,” and “will preserve American jobs, strengthen the American economy, and encourage innovation.”  On September 6, Sprint followed in the footsteps of the DOJ by filing their own lawsuit.

What’s Next?

While the recent DOJ ruling may set things back a bit, AT&T and Deutsche Telekom have publicly come out with statements showing confidence that they will still get approval from the FCC.  Sprint appears to be speaking out due to its failure to reach a deal first and would they still think that three carriers isn’t enough competition if they were the ones to make it happen?

It may be just my opinion, but our country has proven to do just fine with 3 competitors in other industries.  Look at the fast food burger industry… we have McDonald’s, Burger King, and Wendy’s.  In mobile phone operating systems we have Apple, Google, and Research in Motion (RIM).  Prices continue to stay competitive and innovation hasn’t shown any indications of slowing down.  In the wireless carrier market, I do not believe that Verizon, AT&T, and Sprint would stop trying to compete if T-Mobile didn’t exist.  Also, Deutsche Telekom has shown that they are looking to get rid of their T-Mobile USA subsidiary, so what would happen if they just shut their doors?

Stephen Fuchs
Stephen founded German Pulse and LGBT Germany out of a passion to introduce Americans to a Germany that goes beyond beer and polka (although with enough beer he has been known to polka it up a bit). He's a coffee addict, lover of wine and good times, a hit in the kitchen and editor of TV commercials. You can follow him on Twitter (@StephenWFuchs) to find out a lot more.
Stephen Fuchs on EmailStephen Fuchs on LinkedinStephen Fuchs on Twitter