Years of speculation regarding T-Mobile USA’s future ended yesterday with the surprise announcement that AT&T is to buy the embattled telco for $39bn.
Rumours regarding the possible sale of T-Mobile USA have been circulating for years but almost always worked on the assumption that the telco would unite with a smaller operator, such as Sprint or, more recently, Clearwire.
Shares in Deutsche Telekom jumped by as much as 16 per cent on the back of the news, which will see it becoming AT&T’s largest shareholder, taking an 8 per cent stake while handing over 100 per cent of T-Mobile USA. The purchase will see AT&T adding 34 million customers to its base, giving it a 43 per cent market share against now-second-placed Verizon at 35 per cent.
While many observers believe the deal will allow AT&T to cement a leading role for itself in the mobile data market, Informa analysts have suggested that getting approval for the deal may not be an easy ride. Principal Analyst at Informa Telecoms and Media, Mike Roberts, called it “a huge deal that could fundamentally change the structure of the US mobile industry” pointing to the fact that it would represent a significant increase in market concentration. “With the new top players having a combined market share of 74 per cent, up from 63 per cent today, the deal is likely to draw fire from US authorities, including the FCC and potentially the Department of Justice (DoJ),” said Roberts. This view would appear to be underscored by AT&T’s agreeing to a $3bn break clause for Deutsche Telekom should the US authorities scupper the deal, which is expected to take at least a year to complete.
“The FCC and DoJ, like many regulators, use the Herfindahl-Hirschman Index (HHI) of market concentration to judge proposed mergers,” says Roberts. “Based on FCC guidelines, any deal that increases HHI by more than 100 requires an antitrust review.” Informa analysts estimate that the AT&T-T-Mobile deal would increase the HHI by close to 700, giving rivals such as Sprint ammunition to fight the deal, plan countermoves and potentially make a counter offer.
Informa analysts say that even if that deal was approved, it would likely come with significant conditions designed to ensure the survival of smaller players and the maintenance of adequate competition in the US market. “Regulatory conditions could include forcing AT&T to divest assets in parts of the US where the deal leads to excessive market concentration,” says Roberts, adding that access rights for smaller players to key competitor infrastructure such as spectrum and base stations could also be established.
Chief Research Officer at Informa, Mark Newman, adds that, from a European perspective, the sale of T-Mobile would make Deutsche Telekom “a pure European play”, unlike competitors Vodafone, Orange and Telefonica. The German telco’s central European subsidiaries (in Croatia, Hungary and Slovakia) still hold rich potential. “We believe that Deustche Telekom will invest heavily in these businesses and markets rather than embark on another foray outside of Europe,” says Newman. “Building next-generation broadband networks requires significant investment and we would expect Deutsche Telekom to emerge as the dominant player in many of these countries.”
Deutsche Telekom CFO Tim Hoettges said that the firm had no plans to expand into African or Asian markets, adding that “we are concentrating on the organic growth of our business.”
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