AT&T easily will survive any failure of its bid to buy T-Mobile (News - Alert) USA. T-Mobile USA, on the other hand, will continue to face strategic problems. A distant fourth in the U.S. mobile market, with no spectrum available to launch a fourth-generation network, T-Mobile USA either has to spend lots more money to try and catch up to AT&T and Verizon Wireless (News - Alert), or must exit the U.S. market. Few think its parent, Deutsche Telekom, has the appetite for investing.
Any failure of the AT&T bid might make T-Mobile USA cheaper for any acquirer to buy, though. After all, DT already has signaled that it wants to exit the market. Its position hasn't improved since the deal talks began.
Sprint (News - Alert), which originally had wanted to merge with T-Mobile USA, might not be able to do so if the AT&T bid fails, since the logic that the market already is too concentrated presumably would not allow Sprint to be the reason the market consolidates from four top companies to three, despite a certain pro-competitive logic to combining the weaker number three and four players.
T-Mobile USA has lost 850,000 contract customers in 2011. In the third quarter, sales fell 2.3 percent to $5.23 billion, though earnings rose 3.8 percent to $332 million. One wonders if earnings rose because T-Mobile USA essentially stopped investing as it would have if it thought it was going to be an on-going business.
Uncertainty over T-Mobile's future arguably has complicated the company's relationship with customers and vendors. Suppliers obviously would have started to consider contingency plans if T-Mobile USA were to be absorbed by AT&T. They will still have those considerations in mind, since most observers still believe T-Mobile USA will sell.
The other issue is how well T-Mobile USA can restructure its business model. T-Mobile USA appears to be positioning more aggressively against the faster-growing prepaid end of the market. But T-Mobile USA has a cost basis arguably much higher than other prepaid providers.
T-Mobile gained 826,000 prepaid customers in this year's first nine months of 2011. The problem is that profit margins for such customers are lower than margins for prepaid customers. Also, T-Mobile USA is the only service provider of the top four without the ability to sell the Apple (News - Alert) iPhone. Deutsche Telekom's unsolved problem
Both firms repeatedly have argued that T-Mobile did not have a future on its own and must merge with its bigger rival. If that is true, it will still be true if the AT&T bid fails.
“T-Mobile is clearly a company that had no plan to compete in [next-generation wireless] going forward,” said AT&T senior EVP Jim Cicconi.
T-Mobile USA’s CEO, Philipp Humm, made the same point at a May 2011 hearing on the merger before the Senate Judiciary Committee. “As data usage continues to explode, spectrum is becoming a constraint to our business, with T-Mobile facing spectrum exhaust over the next couple of years in a number of significant markets,” Humm said. “Moreover, our spectrum holdings will not allow us to launch [Long Term Evolution].” No independent future?
Aside from sale to another firm, T-Mobile USA, which currently is part of DT, could go public, which would give DT another way to liquefy the asset.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.
Edited by Rich Steeves