Regulatory hurdles are the biggest concerns as industry and financial analysts weigh in on AT&T's $39B bid for T-Mobile USA

Michelle Donegan

March 21, 2011

4 Min Read
AT&T/T-Mobile: Riddled With Regulatory Risk

In the wake of AT&T Inc. (NYSE: T) and T-Mobile US Inc. 's US$39 billion surprise deal that has rocked the US wireless industry, the biggest concern among analysts is how this merger might clear the regulatory hurdles it faces at the U.S. Department of Justice and the Federal Communications Commission (FCC) . (See AT&T to Buy T-Mobile USA for $39B.)

While the sale to AT&T is generally regarded as a good fit and a positive move for Deutsche Telekom AG (NYSE: DT) -- as shown by the surge in the German operator's share price today -- the transaction is not expected to be completed until the first half of next year, which signifies a long legal and regulatory process. (See DT's Shares Rocket on AT&T Deal, What Happens to Sprint After AT&T/T-Mobile Merger? and Could AT&T/T-Mobile Deal Mean an HSPA+ iPhone?)

AT&T's proposed acquisition of T-Mobile would bring together the number two and number four players in the market, a combination that would make AT&T the largest operator in the U.S. with a (current) market share of 43 percent. That potential dominance has left industry and financial analysts wondering what kind of concessions the operators will have to make to get the deal approved.

Here's what analysts are saying so far about the U.S. wireless industry's mega-deal:

  • Credit Suisse Analyst Jonathan Chaplin told the Financial Times that he had "never seen a deal with more regulatory risk be attempted in the U.S.," and while it was unlikely AT&T would attempt such a deal if it thought it couldn't be completed, it will likely require "massive divestitures and concessions" to achieve regulatory approval.

  • Heavy Reading Senior Analyst Gabriel Brown says: "It’s not unheard of in international markets for the lead operator to have 40 percent, or greater, market share by subscribers, but U.S. regulators will inevitably extract concessions if the deal is to be approved. The questions are how deep, and in what regions, it will look to cut the combined operator down to size."

  • Informa Telecoms & Media 's Principal Analyst Thomas Wehmeier believes the deal will actually have the most value for lawyers and bankers during the year-long regulatory approval process. "The concentration of close to 75% of the wireless market into the hands of just two players, AT&T and Verizon, will inevitably draw fire from the US authorities, including the FCC and the Department of Justice," he wrote in an email distributed Monday morning. "If and when the deal is finally approved it will likely not be without significant concessions being imposed upon AT&T by the industry watchdog, such as divesting spectrum holdings, divesting customers or granting access rights to tower sites to smaller players where excessive market concentration is identified."

  • But there are some elements of the deal that could work in AT&T and T-Mobile's favor for regulatory approval, according to this Bloomberg report. Larry Freedman, a partner at law firm Edwards Angell Palmer & Dodge LLP, told Bloomberg in an interview: "One of the interesting things that's going to help them at the FCC is the compatibility of the network. The spectrum crunch would be alleviated because you have complementary networks and the ability to use each other's spectrum. That could be viewed as a positive."

  • Matt Hatton, director of Machina Research, wrote in his blog that this deal could spark more M&A action in the U.S. "A T-Mobile/AT&T tie up creates a GSM powerhouse with 130 million customers. It is likely that the CDMA operators will consider doing the same to give themselves 150m subs and a nearly 50% market share, thus effectively creating a duopoly for services…"

  • Mizuho Securities USA Inc. 's Executive Director of equity research for telecom services Michael Nelson has picked the likely winners and losers from the deal: "We believe Verizon is well-positioned to extend its share of postpaid subscribers. MetroPCS may be the biggest winner with extended share gains, particularly from [T-Mobile USA], and a potential increase in asset value due to the scarcity factor. Infrastructure companies and tower operators may be the biggest potential losers with one less national carrier as a customer."

  • Forrester Research Principal Analyst Charles S. Golvin believes the deal is all about scale for AT&T. "The acquisition, were it to pass regulatory muster (no slam dunk that), addresses a number of scale challenges for AT&T," writes Golvin in his blog. "Most importantly, it delivers the precious spectrum assets needed to deploy a robust, nationwide LTE network… It also delivers a boatload of extant base stations, many fed by Ethernet or fiber backhaul, which will help AT&T bolster its service quality (iPhone owners please don’t hold your breath). And it delivers a skilled radio frequency team that will help the company plan and deploy its next generation network."

    — Michelle Donegan, European Editor, Light Reading Mobile

About the Author(s)

Michelle Donegan

Michelle Donegan is an independent technology writer who has covered the communications industry for the last 20 years on both sides of the Pond. Her career began in Chicago in 1993 when Telephony magazine launched an international title, aptly named Global Telephony. Since then, she has upped sticks (as they say) to the UK and has written for various publications including Communications Week International, Total Telecom and, most recently, Light Reading.  

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