Analysts dish on AT&T Mobility's plan to buy T-Mobile USA

The quick takeaways from analysts on AT&T Inc.’s plan to buy T-Mobile USA Inc. in a $39 billion deal are largely positive, albeit slightly reserved in a congratulatory tone as the transaction still awaits regulatory approval.
Mark Lowenstein, managing director at consulting firm Mobile Ecosystem, said the deal highlights a new wave of consolidation around scale. Whereas the previous wave of consolidation, which he pegs from 2005 to 2008, was about creating national 3G networks and consolidating customer bases, this new wave is about scale, he added.
“The pace of device innovation and growth of connected mobile computing devices is putting enormous pressure on the operators to deliver ubiquitous, high-capacity mobile broadband networks. Real 4G, not “4G”. Operators feel that they must marshal the maximum resources possible to meet the surging demand for mobile data,” Lowenstein wrote.
“Many will argue that customers will have less choice and will pay higher prices for service. They point to cable as the case study. Sure, there will, ultimately, be fewer facilities-based operators than there were at the ‘peak’ of wireless competition. But consumers will benefit if we can get more quickly to a robust choice of ubiquitous, high capacity, speedy mobile broadband networks, versus the “there’s Verizon Wireless and then everybody else” perception that has pervaded for several years. We might be moving toward an oligopoly in wireless services, but with flank brands, MVNOs, and the power of Best Buy Co Inc., Apple Inc., Wal-Mart Stores Inc., and other distributors, the wireless sector is still more competitive than landline phone, cable/satellite TV, utilities, and most types of insurance, to name a few,” he continued.
Among others, Lowenstein points to Apple as one of the standout winners in this deal since it stands to gain a new base of 30 million potential iPhone customers without having to sign another carrier deal. “Application developers are also winners, since mobile OS is following a similarly consolidating track, with operators becoming less central to their success. A consolidated operator landscape could enhance their distribution and help speed the rollout of enhanced capabilities, from carrier billing to speedier deployment of IP/IMS-based services. The operators also have a better shot to become more viable forces in areas such as mobile advertising and mobile commerce,” he added.
The vendors that sell exclusively to operators stand to lose from this deal as the combined companies would spend less, deploy less and consolidate facilities, Lowenstein predicts.
Thomas Wehmeier, principal analyst at Informa Telecoms & Media, said the deal “has to be seen as pulling the ace from the pack,” considering it’s a move that few predicted, but one that will alter the U.S. mobile landscape dramatically.
“The sale of the unit helps Deutsche Telekom AG to recoup the value sunk into the business, while retaining a strategic interest in the hugely important US market through its 8% equity holding in AT&T. The strong transatlantic ties that should now develop between AT&T and Deutsche Telekom will represent an interest counter-balance to the deepening partnership emerging between Vodafone Group Plc and Verizon,” Wehmeier wrote. “AT&T has paid a full price for its smaller rival, but the motivation for shelling out to that extent is pretty straightforward — it’s about stocking up on its supply of the basic raw materials that drive a successful operator business, namely spectrum, sites, stores and customer scale.”
Wehmeier also points out that the deal would lead to the “concentration of close to 75% of the U.S. wireless market into the hands of just two players, AT&T and Verizon.”
William Ho and Avi Greengart at Current Analysis are also taking a largely positive stance on the deal because it puts AT&T back on track to be the largest U.S. carrier and paves the way for equipment and spectrum synergies to help AT&T address future explosive data growth and demand.
The deal also plays well to “complement presidential and Federal Communications Commission initiatives to ‘connect every part of America to the digital age,’ promoting economic growth, investment and job creation,” Ho and Greengart wrote.
“A combined AT&T and T- Mobile creates a formidable competitive force. While Verizon Wireless has the scale to rival the new AT&T, Sprint Nextel Corp. and other competitors such as US Cellular Corp., Leap Wireless International Inc. and MetroPCS Communications Inc. will be under more pressure due to AT&T’s even better purchasing scale for marketing, network infrastructure, devices and operations. The deal is also significant for mobile device vendors who will have to manage shifts in frequency bands and technologies in upcoming designs while jockeying for position on the shelves at the new, larger AT&T,” they continued.
Ho and Greengart concluded that AT&T and T-Mobile should “continually focus on bringing digital broadband access to the entire cross section of America” in their lobbying effort. Moreover, Deutsche Telekom “must convince U.S. regulators that absent a deal with AT&T, T-Mobile USA’s lower cost business model is not sustainable,” they wrote.