Monday, July 23, 2012

Will AT&T have The Last Laugh?

The Entire Telecom Fraternity is apprehensive about AT&T’s Buyout of T-Mobile. They say it will Benefit the buyer. It will. But the more Important debate is – will This Deal finally go through? B&E analyses why The US Justice Department does not really have a strong Anti-Competitive case against AT&T.

The world is currently fretting over who actually will gain in AT&T’s $39 billion acquisition of the $21.35 billion-a-year revenue-earning T-Mobile. Do a reality check, and you will realise that this is one of those few pointless exercises in life. The second largest AT&T, (valued at $176.34 billion) takes over the fourth-largest T-Mobile, and displaces Verizon (valued at $108.09 billion) as the new #1 US carrier. Period. The biggest advantage to AT&T is that this takeover will give it control over T-Mobile’s HSPA+platform, which will grant the combine a strong foothold on 4G, making it a strong rival to Verizon (which plans to roll-out its 4G service in H2, 2011). Given the degree of technological synergies and the expansive hold on frequency bands across US, this marriage, like any other during the past decade amongst US carriers, has promises written all over it. You said competition? We are talking about the new probable leader (AT&T and T-Mobile combine) with a bag full of 126.53 million customers and the follower with 93.2 million. While speaking to B&E, Scott Woolley, Contributing Editor of Fortune magazine says, “AT&T’s $39 billion buyout of T-Mobile addresses the company’s urgent capacity crunch with the immediate expansion of critical infrastructure. It is also a move to improve network quality for millions of AT&T subscribers and gives T-Mobile customers access to Long Term Evolution (LTE – a move towards 4G technology).” It is a case of enterprise slamdunk!

But that supremacy is what gives experts all reasons to be suspicious of any forecast – will this deal win the approvals of the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC)? That is the unsettling question. For AT&T, it is a $3 billion question (the amount AT&T will be paying T-mobile if the deal falls apart), while for Deutsche Telekom AG, it is $36 billion lost in cash & stock. A shot at becoming America’s largest telecom operator does win a lot of unwanted attention. AT&T claims that this acquisition will bring down call rates. At face value, the argument sounds genuine.

For those worried about prices biting-off a pound of the consumer flesh, the price vis-a-vis consolidation trend during the past decade will help soothe some nerves. Typical to the US market, here is a reality check. Post 1999, level of competition in the US market has actually fallen. Bell Atlantic and GTE combined to form Verizon. SBC, Bell South, Cingular & the old AT&T is today the new AT&T. Sprint & Nextel became one and then gobbled-up Virgin. And Verizon bought Alltel in 2008. In short, there were 11 big players before the start of the century which controlled 85% of the US market. Today, there are four which control 82%. According to a 2010 US GAO Report, which measured cellular price movements using US CPI Urban Consumers Cellular Telephone Index (CPI-U) as the barometer, “from 1999-2009, wireless prices have decreased by 50%”. The secret as it seems: price in the US & European wireless market have always been determined by technology than by competition. With 4G implementation in place, prices of the existing 3G offerings should only head southwards.

Fair enough. The only issue is – if we dig a little deeper, we discover that this decline in cellular rates do not add up. The CPI-U doesn’t measure the expenditure incurred on phone bills. With the increase in sales of tablets and smartphones, consumers are paying more for data services. Even AT&T’s revenue from post-paid connections per customer has increased by 3% over the past several years, revenues from data services was up by 47.57% in 2010 as compared to 2008. Something to ponder over.



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