AT&T purchase of T-Mobile USA leaves two losers (and Verizon's not one of them)
$39 billion deal with Deutsche Telekom, if approved, would make AT&T top U.S. wireless carrier
Based on both common sense and industry rumors over the past few months, a merger of also-ran wireless carriers Sprint and T-Mobile USA seemed all but inevitable.
Then AT&T on Sunday made the stunning announcement that it would buy No. 4 U.S. wireless provider T-Mobile USA from Deutsche Telekom AG for $39 billion, vaulting AT&T past Verizon Wireless as the top American carrier and leaving third-place Sprint in the dust with about 50 million subscribers.
Jonathan Chaplin, an analyst at Credit Suisse Group AG, summed it up well in a note to investors on Sunday (via Bloomberg):
“We thought Sprint would merge with T-Mobile,” Chaplin wrote. "If the AT&T/T-Mobile deal is approved, Sprint is locked into the No. 3 position against a dominant AT&T and Verizon."
Of course, Sprint really isn't locked into the No. 3 position. Five years from now no one's going to be talking anymore about "No. 3 U.S. wireless carrier Sprint," because Sprint -- as we now know it -- won't exist. It simply can't sustain itself competitively against two giants like AT&T and Verizon Wireless.
So Sprint's future -- again, assuming the AT&T/T-Mobile deal clears regulatory scrutiny -- likely will include one of the following: 1) Being purchased by Verizon Wireless 2) Merging with regional carrier U.S. Cellular, or 3) Getting bought out by an international carrier.
You've got to give AT&T credit for pulling off this deal, especially so soon after Verizon began selling Apple's iPhone, which until last month could only be purchased by AT&T subscribers. Between the Verizon iPhone and continual customer complaints about its poor wireless network, AT&T has been on the defensive for months. Scooping up T-Mobile is a proactive move that not only makes AT&T the top U.S. wireless carrier in terms of total subscribers (with more than 125 million to Verizon's 93 million), it instantly (at least theoretically) upgrades AT&T's network reliability.
In the press release announcing the acquisition, AT&T says its "acquisition of T-Mobile USA provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies’ customers."
That certainly makes sense. But another part of AT&T's press release is disingenuous at the least:
"The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal. The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market. ... The competitiveness of the market has directly benefited consumers."
The truth, however, is that there are four major national wireless carriers. If this deal is approved, there will be three, with one of them essentially being a dead man walking. In other words, the outcome of the T-Mobile acquisition probably will be two major wireless carriers in a relatively short time.
Which is why consumers are the other big losers here, because soon they may have half as many choices among national wireless carriers. And how is that a good thing?
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.