What If AT&T's T-Mobile Buyout Gets Shot Down by Regulators?

The media is full of reports that U.S. regulators have begun to take a long, hard look at whether the AT&T (T) deal to buy T-Mobile from parent Deutsche Telekom (DTE) will create a quasi-monopoly in the American cellular carrier industry. The Justice Department has broadened its investigation into the potential transaction.

Most of the analysis of the proposed buyout has focused on the expense reduction and subscriber price leverage AT&T would gain through the deal. But the telecommunications giant has more profound motivations to make the acquisition. Its residential land-line business is dying as people switch to the use of cellular phones and VOiP, and AT&T's own foray into broadband-to-the-home puts it in direct competition with already-entrenched cable companies.

Observers note that the AT&T buyout of T-Mobile would give the larger company more wireless spectrum, but it's not clear whether this would help it solve its cellular traffic problems. AT&T's 3G network has been clogged with data ever since it began to market the Apple (AAPL) iPhone.
It has begun efforts to roll out a national 4G network to compete with Verizon Wireless and Sprint-Nextel (S). The Federal Communications Commission investigation of the $39 billion transaction has focused on, among other things, AT&T's ability to hog wireless frequencies, which are in short supply.

AT&T's earnings reports tell the story of a company which has just one division showing strong growth: cellular. The company's legacy business of providing home telephone service is in a period of attrition. In its 10-K filing with the SEC, AT&T states: "Revenues from our traditional voice services have been declining as customers have been switching to wireless, cable and other Internet-based providers." Wire-line voice service was 30% of the firm's revenue in 2008. In 2010, it was down to 23%.

Meanwhile, the AT&T U-verse fiber-to-the-home effort has nearly stalled. It added only 218,000 net subscribers in the first quarter to reach a total of 3.2 million. That leaves it a long way from catching cable leaders like Comcast (CMCSA) and Time Warner Cable (TWC)

At this point, cellular subscription sales in the U.S. are close to a zero-sum game. The number of people with wireless plans has leveled off in recent years, and if AT&T hopes to maintain rapid growth in this sector, it will have to take customers from its rivals. A buyout of T-Mobile would push it into a strong first place in cell phones, and it's going to need that No.1 spot: Its other core businesses have faltered.



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26 Comments

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Soulzister

Reading the comments I would strongly get the impression that Tmob is a great company, with wonderful service, and mediocre prices. But they don't have great CS, and their prices are ridiculous - you take their newest ploy; the $70 prepiad unlimited plan, it's the most expensive unlimited plan I know of. Compared to tracfones straight talk, Boost, even Verizon's unleashed', TMO look like back alley muggers. So much for adding an element of competitiveness to the market. On the back of that, they've just proved with their 1st Q results (again), that they're not even in the running for surviving on their own. At least if AT&T do get the merger the spectrum won't go to absolute waste.

May 09 2011 at 7:09 AM Report abuse rate up rate down Reply
joseph evelina

Well unemployment is 9% this merger will get it to 10% just like with the Sprint Nextel fiasco FCC stop this nightmare before it happens Rates for users will only go up This merger will only give a new meaning to the words Robber Barons

May 06 2011 at 11:19 AM Report abuse rate up rate down Reply
The1890TShirtCo

Whatever happens, make sure you keep using the hot chick that does the T-Mobile commercials. Otherwise we can all just switch over to Verizon.

May 04 2011 at 5:12 PM Report abuse rate up rate down Reply
jkennedy806

Anti trust probe for AT % T and T-Mobile, after these -- work on the banksters

May 04 2011 at 3:25 PM Report abuse rate up rate down Reply
jkennedy806

What ever happened to getting customers the old fashioned way, great prices, wonderful customer service, value, good will -- instead of buying another company out to get customers. It's like we are victims of a hijack or something

May 04 2011 at 3:24 PM Report abuse +3 rate up rate down Reply
mccomisb

I have been told that AT&T i thinking about buying out VG (Vonage). Is there anything to this story?

May 04 2011 at 3:01 PM Report abuse rate up rate down Reply
kv37

I'm all for the big companies taking over. ATT and Verizon can run the whole show as far as I'm concerned. Wireless is the future and its going to take some big guns to make it happen.

May 04 2011 at 2:45 PM Report abuse rate up rate down Reply
1 reply to kv37's comment
jkennedy806

Not where I live, I still have analog lines and rotary dial phones, progress for me would be broadband

May 04 2011 at 3:26 PM Report abuse +1 rate up rate down Reply
1 reply to jkennedy806's comment
bggdg

Where you live, wireless is not the future? What planet is that?

May 05 2011 at 9:12 AM Report abuse rate up rate down
David

AT&T stands for only one thing, Awful, Terrible and Too expensive!!!!

May 04 2011 at 1:30 PM Report abuse +2 rate up rate down Reply
rjbhighc

If this deal is Ok'ed the costumer Service at AT&T will get even worst . Waiting on the Phone for 36 Minutes ,-
yes 36 Minutes for a live Service rep. If this what they call Costmer Service you have seen nothing yet . Still these Companys have the Nerve to call US their valued costumer , YEAH sure ! And you are lucky to get a Rep. on the Phone you get some one 10,000 Miles away , People who you can NOT understand , be course they don't speak english , or at leasr very poorly . HOW dare they call us a VALUED costumer .

May 04 2011 at 1:27 PM Report abuse +2 rate up rate down Reply
1 reply to rjbhighc's comment
bggdg

That's why we rely on a free market (well, sort of free). Vote with your feet instead of whining on AOL.

May 04 2011 at 3:01 PM Report abuse rate up rate down Reply
jkennedy806

If they let this go thru, we will be back to the one network system, that divesture broke up.

May 04 2011 at 1:01 PM Report abuse rate up rate down Reply