Commentary
A Maverick's Woes Weaken AT&T's Merger Rationale
- by Mark Walsh @markfwal, August 2, 2011
In documents AT&T filed in April with the Federal Communications Commission on its planned $39 billion acquisition of T-Mobile, it cited thriving competition in the wireless industry as part of its argument on behalf of the deal. In particular, AT&T pointed to the rise of "mavericks" like MetroPCS and Leap Wireless International that cater to budget-conscious consumers and compete more directly with T-Mobile.
These companies could also help fill the void left by T-Mobile being folded into AT&T, according to the telecom giant. "T-Mobile USA's absence from the marketplace will not have a significant competitive impact, particularly vis-à-vis AT&T. AT&T is more focused on Verizon and Sprint than on T-Mobile USA, and AT&T too is seeing increased competitive threats from rapidly growing mavericks like MetroPCS and Leap and other providers," stated AT&T's filing.
But in the wake of its second quarter results, it looks like MetroPCS is the one in trouble. The company today reported adding 198,810 new customers in the quarter, well below Wall Street's consensus forecast of 230,000 to 240,000. Earnings of 23 cents per share also missed analyst expectations of 29 cents, leading investors to cut the company's stock price by about a third. Ouch.
The share price of Leap Wireless, which reports second quarter earnings Wednesday, was down almost 20%. In the MetroPCS conference call, the company's COO Thomas Keys blamed the slowdown in subscriber growth in part on the sluggish economy. He also suggested special offers from Sprint and T-Mobile during the quarter may have lured customers away. Sprint added 674,000 prepaid customers in the quarter. AT&T added 1.1 million total customers, including 331,000 contract subscribers.
So much for the mavericks threatening T-Mobile and AT&T. Yes, MetroPCS has begun carrying smartphones like the Android Indulge and BlackBerry Curve. But it doesn't have the iPhone or a wide range of other top-end smartphones that typically require contracts. With the mavericks less diversified and focused on the no-contract market, they're the ones that look more vulnerable to a prolonged economic slowdown.
If any of those prepaid services end up merging themselves, then T-Mobile's disappearance from the market as a budget-oriented option might not go quite as unnoticed as AT&T argues in its FCC documents. And with their stock prices plummeting, the maverick wireless carriers become more inviting acquisition targets.
Apart from the MetroPCS developments Tuesday, Yankee Group issued a report warning that the AT&T/T-Mobile deal would decrease competition and increase average mobile prices in the biggest U.S. wireless markets.
"We believe this merger will reduce choice for consumers and, more importantly, leave little incentive for AT&T to offer competitive pricing for unbundled mobile services," said Gigi Wang, Yankee Group's chief research officer. The firm urged the FCC to block the merger unless it plans to take a stronger regulatory stance.
Mark Walsh can be reached at walsh@mediapost.com
I say block it, aside from the competitive issue raised in the last paragraph, where do you think these ankle bitters, MetroPCS and Virgin Mobile get their bandwidth from? Answer Sprint. Understandably Sprint says they will die if this merger is allowed. Competition is what has simultaneously kept prices handset and connectivity costs low and as well as handset and wireless technology advancements. The recent elimination of "unlimited" wireless by ATT and VZ even prior to this merger is a precursor to more expensive and limiting things to come. There is absolutely nothing in it for the consumer- except that ATT will finally fix its network. Crappy way to solve their lousy business planning and execution.