Report: No 'Plan B' for T-Mobile USA - Mobile World Live

Report: No ‘Plan B’ for T-Mobile USA

01 SEP 2011

Bloomberg reports that Deutsche Telekom has not prepared any alternative plans should AT&T fail to acquire T-Mobile USA, with the German company apparently “surprised” by an action announced by the US Department of Justice (DoJ) yesterday to block the US$39 billion deal.

The DoJ said in a statement that the transaction would “substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.”

According to Bloomberg, Deutsche Telekom “may never get as good a deal” as it did with AT&T, even taking into account a break-up fee with AT&T which has been valued at up to US$7 billion, including cash and spectrum. The issue is that T-Mobile USA has continued to struggle in the market, making it a significantly less attractive target, with one observer describing the business as “damaged goods.”

The shifting US position will also impact Deutsche Telekom’s other international businesses. It had been expected to use the proceeds of the transaction to bolster its core European activities, while removing the need to continue funding and operating the smallest of the “big four” US national operators. However, it may now find itself stuck with the ailing US unit, without another potential buyer on the horizon – while competition at home remains strong.

With AT&T and T-Mobile both using complementary network platforms, the companies are in a better position to merge their operations than T-Mobile and Sprint, which was previously widely seen as the most likely alternative combination. Alternatively T-Mobile USA could look to become stronger through mergers or acquisition with tier-two US operators, although a number of smaller transactions is likely to be more complex to manage than a single, large deal.

Apparently, AT&T and T-Mobile are unlikely to be able to address the DoJ’s objections through negotiation, leaving a lengthy and costly legal battle as the only option. AT&T has already called for an “expedited hearing so the enormous benefits of this merger can be fully reviewed,” noting that the DoJ “has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.”

The Financial Times reported that there is a “political tinge” to the DoJ’s action, with the department stating that it sees a block as “a move that will help protect jobs in the economy, not a move that’s going to in any way reduce them.” This, when compared with an integration strategy which would see jobs cut at AT&T/T-Mobile USA, “dovetails perfectly with the agenda of the Obama administration, which is focused on how to create, and protect, jobs, at a time of persistent high unemployment.”

But there are options for the US business. The Financial Times reports that Robin Bienstock, senior research analyst at Sanford C Bernstein, had said that: “Deutsche Telekom has an empty network, which means that it could just go for prepay and cheap data, which would not be great for its margins but far worse for Sprint.”

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Steve Costello

Steve works across all of Mobile World Live’s channels and played a lead role in the launch and ongoing success of our apps and devices services. He has been a journalist...More

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