With shares of AT&T and Deutsche
Telekom stock trading up Monday, it's clear the market is already rewarding the telecom giants for AT&T's proposed $39 billion acquisition of T-Mobile USA. With T-Mobile's 46 million customers, AT&T
vaults ahead of Verizon to be the No. 1 U.S. carrier, and Deutsche Telecom unloads its also-ran U.S. unit in return for 8% of AT&T and a seat on the board.
So if the two companies and their
shareholders stand to benefit from the mega-deal, who else could come out winners in an AT&T/T-Mobile merger? There's Apple, for one. The acquisition would effectively extend the iPhone's availability
to three of the four major carriers and two-thirds of U.S. wireless carriers through the deal.
That type of overnight expansion would certainly help Apple blunt Android's surge in
smartphone market share, owing in no small part to the Google platform's availability across all of the major carriers.
The iPhone could also help AT&T retain T-Mobile
customers post-merger. But not if adding all those T-Mobile customers exacerbates problems AT&T has had providing reliable service to iPhone owners. Craig C. Moffett, an analyst at Sanford C.
Bernstein, today told Bloomberg that AT&T's network isn't ready to handle a bunch of extra subscribers hitting its network.
For its part, AT&T has pointed out that the merger will boost the
number of cell towers as much as 35% in iPhone-centric markets like New York and San Francisco. The companies also use the same GSM network technology to smooth integration, and AT&T said acquiring
T-Mobile would expand its rollout of 4G LTE service to 95% of the U.S.
Since Verizon got the iPhone, testing by Consumer Reports has shown the iPhone on AT&T's network provided
faster data connections, while Verizon's had fewer dropped calls.
Other companies that might gain from the AT&T-T/Mobile merger are prepaid service providers like MetroPCS and Leap
Wireless, which operates Cricket Wireless. With T-Mobile, the "low-price leader" of the major carriers out of the picture, there could be an opening for these budget-oriented wireless rivals to claim
more of the low end of the market and further differentiate themselves from the remaining national carriers.
Shares of Leap Wireless were trading up more than 13%, and those of MetroPCS, up
4.5%, Monday afternoon. The two companies could also wind up as acquisition targets themselves, of Verizon or Sprint, which in 2009 bought leading prepaid service Virgin Mobile in 2009.
Speaking of Sprint, the nation's No. 3 carrier is ostensibly the biggest loser from the AT&T/T-Mobile deal. Before AT&T surprised the wireless world with its T-Mobile bombshell, speculation had Sprint
and T-Mobile teaming up to take on their two much larger carrier rivals. Now Sprint is faces the prospect of taking on Verizon and AT&T alone, explaining why its stock is tanking 15% today.
Verizon obviously would be diminished as well, reversing positions with AT&T to become the country's No. 2 carrier. That naturally leads to speculation that Verizon and Sprint, which
both use CDMA network technology, would pair up to better compete with a combined AT&T and T-Mobile.
On the advertising front, another loser could be Publicis, which handles creative work
for T-Mobile, as well as media buying, through its Optimedia media unit. At the same time, it could prove a boon to BBDO, AT&T's creative agency, and WPP's Mediaedge:cia, on the media side. But the
agency situation will take longer to shake out since AT&T is saying the deal itself will take 12 months to close.
What about consumers? AT&T has already taken pains to say how much
wireless consumers will benefit from better quality service, a broader 4G network, and the increased network efficiency the carrier will gain by adding spectrum from T-Mobile. But it's hard to see how
consumers come out on top when the country goes from four to three major carriers. The FCC may want to free up more spectrum to expand mobile broadband service, but the merger isn't how it envisioned
achieving that end.
In a report last May, the agency expressed concerns about the industry
becoming increasingly concentrated. It pointed out Verizon Wireless and AT&T between them already had 60% of the nation's wireless subscribers and revenue. And since 2003, market consolidation in
wireless has increased 32%.
With T-Mobile's estimated 12.5% of the U.S. wireless market shifting to AT&T, the landscape would be that much more concentrated. The prospect that the deal will
prompt further M&A activity in the sector also doesn't bode well for consumer choice in wireless service.