TC2's David Rohde on Telecom
By David Rohde Posted August 31, 2011
So AT&T can’t really control events after all.
Today the Justice Department filed suit to block the AT&T/T-Mobile merger. The government’s action doesn’t necessarily kill the deal – AT&T can, and for the moment says it will, fight the lawsuit. The Justice Department and AT&T also could theoretically negotiate a settlement that somehow lets the merger proceed, albeit with a lessened combination of spectrum assets.
But the government’s fundamental point – that four national competitors selling essentially the same type of product is better than three – seems to trump AT&T’s core claim that pulling two of the four together is the best way to get a better network as fast as possible.
It’ll be especially hard for AT&T to get away from the Justice Department’s observation that T-Mobile on its own manages to provide a “value brand” and still drive faster into 3G and (by someone’s loose definition) 4G than some other competitors.
We’ve been discussing this week how AT&T builds multiyear timelines for expected migrations to technologies like VoIP and 4G using a two-pronged strategy: 1) Posture as the leader in the new technology and highly desirous of getting rid of the old one; 2) Hold back the actual migration to a crawl via contractual, regulatory, and industry restructuring moves.
Pulling this off in a way to harvest the revenue stream of the legacy products and manage the cannibalization of that revenue when users finally demand the change is getting to be a real tap dance. Let’s face it: Gone are the days when telecom industry executives could spend 18 months manipulating the merger of two RBOCs – or pasting together the combination of an RBOC and a major long distance carrier – while the world stood still.
Much of the immediate reaction to the Justice Department’s blocking of the T-Mobile deal is seen to be to Sprint’s benefit. I view that as half-true. People have to be willing to abandon AT&T Mobility for more Sprint wireless usage at a time when Sprint is shuffling 4G technologies and partnerships in a way that may not be ready for full market re-launch (especially in LTE) until the middle of next year.
By contrast, Verizon’s stock may be down slightly today, but its non-merger, non-partnership-based 4G LTE buildout strategy appears to be validated. There’s always been speculation that Verizon might actually have to divert resources to buy Sprint and its wireless subscribers if AT&T got T-Mobile. That’s because AT&T’s disclosures have made increasingly clear that it mostly saw an opportunity to buy T-Mobile’s subscribers at the price offered, and the price to buy Sprint has continued to get cheaper (notwithstanding today’s moderate stock price increase). Obviously that pressure is now off on Verizon to pony up for Sprint. If AT&T/T-Mobile can’t pass legal muster, obviously Verizon and Sprint can’t be put together, and Verizon can continue to put full weight behind its actual 4G buildout.
For now, today’s government action provides clarity on a key bid list question. There have always been four logical bidders on a U.S. wireless RFP, and that remains true now. But the other piece of the puzzle is whether the industry, with its sudden intersection of consumer and business needs as seen most readily in wireless voice and data, is simply moving too fast for even AT&T to “manage.” Maybe the telecom industry is not the best place for control freaks any more – we’ll see as the story continues to play out.Tags: 4G Wireless, Mergers and Acquisitions, Regulation