Mergers & acquisitions

AT&T & T-Mobile's Goliath Crushes the Davids

AT&T Inc. (NYSE: T) has decried a spectrum shortage and the need to bring connectivity to rural areas as motivators for its acquisition of T-Mobile US Inc. , but rural America is calling the soon-to-be gigantic carrier's bluff. (See AT&T to Buy T-Mobile USA for $39B.)

Joel Drahman is the COO of Plateau Telecommunications , a rural wireless operator serving 79,000 customers in eastern New Mexico and western Texas. The GSM carrier operates under a roaming agreement with both AT&T and T-Mobile -- an agreement that, Drahman says, will evaporate if the acquisition closes.

"Basically, [the acquisition] would put us out of business," he says.

Drahman adds that wireless operators all around Plateau have already been going out of business for years due to an unlevel playing field forged by things like exclusive phone agreements and inequitable purchasing power. The acquisition could be the final nail in their coffins.

"They say the reason they need to do it is spectrum and serving rural America -- both those claims are ridiculous," Drahman continues. "They already have spectrum here, so why aren't they providing service? They will never provide the quality of service we can, and they won't commit the resources to rural America."

T-Mobile and AT&T both have towers in Plateau's region, but they aren't investing much in the area, he claims. Further, there is adequate spectrum in his region. Could there be more? Of course, he says, but Drahman's not convinced that having more spectrum will suddenly lead to a call to action to better serve the area.

AT&T also argues that T-Mobile will give it a Long Term Evolution (LTE) network that will reach rural regions. At least in Plateau's neck of the woods, however, there would be a lot of work to be done.

As illustrated in the following charts, T-Mobile only has a few towers located in the New Mexico to Texas region, whereas Plateau has it blanketed. If AT&T does away with Plateau, it will have to spend a lot of time and money building new towers to get connectivity to the region. (See Big AT&T & T-Mobile 4G Buildout Ahead? and AT&T Could Drop 40% of T-Mobile.)

Rural America's allies
The Rural Cellular Association , which Plateau is a member of, has voiced its concern about the acquisition as well, noting that industry consolidation greatly harms competition, innovation and consumers, in addition to the non-trivial impact on the competition.

"This announcement is not a good development for competitive carriers," RCA President and CEO Steven Berry wrote in a statement. "Rural America stands to be the most negatively impacted by approval of such a 'mega-merger' without significant conditions to ensure competitive forces are not eliminated as a result. The FCC must look to bring more of the competitive forces back into the wireless industry through data roaming, interoperability, success-based USF reform and a competitive spectrum allocation."

The rural carriers' biggest ally may likely be Sprint Corp. (NYSE: S), which has taken its disdain of the deal to a federal level. The carrier filed its formal objection on Monday, urging the U.S. government to block the "anti-competitive acquisition." (See Sprint Opposes AT&T/T-Mobile Deal, Sprint Plans to Fight the AT&T/T-Mobile Deal, CTIA 2011: Verizon, Sprint CEOs React to AT&T/T-Mobile Combo and What Happens to Sprint After AT&T/T-Mobile Merger?)

"This transaction will harm consumers and harm competition at a time when this country can least afford it," Sprint SVP Vonya McCann wrote, in a statement, countering AT&T's patriotic approach. "So on behalf of our customers, our industry and our country, Sprint will fight this attempt by AT&T to undo the progress of the past 25 years and create a new Ma Bell duopoly."

Sprint didn't outline how it intends to fight the proposed acquisition, but it is at least trying to get its opinion heard by regulators, as are the RCA, Plateau, and a number of other small carriers. It remains to be seen if the collective power of their voices will make a dent, however.

As Drahman points out, the terms of the deal -- including conditions that T-Mobile will get $3 billion, spectrum and a roaming deal with AT&T if it doesn't pass -- suggest that the company is confident it will go through. Until then, Plateau -- like a lot of small carriers -- is biding its time, but won't stop fighting.

"It's been a nice run," Drahman says.

— Sarah Reedy, Senior Reporter, Light Reading Mobile

sarahthomas1011 12/5/2012 | 5:09:12 PM
re: AT&T & T-Mobile's Goliath Crushes the Davids

The WSJ is reporting that NY Attorney General Eric Schneiderman will review the acquisition plan to see how it affects competition. I suspect more reviews will also get underway, but he's the first attorney general to confirm he is doing so. Here's the story: http://online.wsj.com/article/BT-CO-20110329-712253.html

WilliamofOccam 12/5/2012 | 5:09:11 PM
re: AT&T & T-Mobile's Goliath Crushes the Davids

While I am no fan of AT&T, it is not clear to me what exactly Plateau is objecting about. If they have roaming tie-ups with both AT&T and T-Mobile, then why are they assuming that these deals will be done away with after the merger? On one hand, Plateau bemoans the large capital investment required to provide coverage and on the other hand states that AT&T currently has few cells in the region. Is Plateau afraid that a merged AT&T will be able to demand better rates? If so, the consumer may actually benefit (if AT&T passes down the savings).

Also, it should be obvious that Plateau and Sprint are fighting more to save their business than server customers or the country but it is not so obvious that blocking the merger will have a material impact on customer satisfaction.

sarahthomas1011 12/5/2012 | 5:09:09 PM
re: AT&T & T-Mobile's Goliath Crushes the Davids

Joel believes that if AT&T acquires T-Mobile, they will have no reason left to maintain their roaming agreement with Plateau. Or, even if they do, Plateau wouldn't be able to compete with their national footprint and exclusive content/device offerings. It's the same issue small carriers have always faced, but this would make it harder for them - and if AT&T does away with its roaming agreement, impossible.

Also, regarding investment, his thought is that AT&T won't invest in rural America enough to provide a high-quality service like Plateau does -- but it will do away with the roaming agreement, hurting consumers in that respect.

You are right that both Sprint and Plateau are looking out for their own business interests. Plateau employees 105 people that would be out of work if all this does happen. But how AT&T handles it still remains to be seen, of course.

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