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AT&T likely bit off more than it could chew

In the past few weeks, it's becoming increasingly clear that AT&T was facing an uphill battle with regards to its wishes to acquire T-Mobile for $39 billion. Today, finally AT&T realized that its efforts were likely futile considering that it was getting plenty of pushback from both the FCC and the Department of Justice.
 
The company announced in a statement that it is giving up its quest to purchase T-Mobile:
 
The actions by the Federal Communications Commission and the Department of Justice to block this transaction do not change the realities of the U.S. wireless industry. It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately. The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled.

As witnessed by AT&T's statement above, the company is confident that the FCC and the DOJ have made a big mistake by blocking the merger and contends that customers will be the ones that will be hurt in the long run.

AT&T chairman and CEO Randall Stephenson [Source: International Business Times]

“AT&T will continue to be aggressive in leading the mobile Internet revolution,” said Randall Stephenson, AT&T chairman and CEO. “To meet the needs of our customers, we will continue to invest. However, adding capacity to meet these needs will require policymakers to do two things.
 
“First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the U.S. wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC.  Second, policymakers should enact legislation to meet our nation’s longer-term spectrum needs."

As a result of the agreed upon "breakup" fee, AT&T will now have to pay $4 billion to T-Mobile parent company Deutsche Telekom AG.

This foreseeable outcome became even more clear this morning when The Wall Street Journal reported that AT&T was having difficulty in selling over 30 percent of the assets in the proposed $39 billion deal to Leap Wireless International Inc., Dish Network Corp., and MetroPCS Communications Inc.

Sources: The Wall Street Journal, AT&T



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A Dish Best Served Cold
By lightfoot on 12/19/2011 5:02:52 PM , Rating: 2
If I were T-Mobile, I would use the $4 Billion to build out additional network capacity and sell back that capacity to AT&T at a premium, since they seem to need it so badly.

Show AT&T what you can do when you invest just a little in improving your network instead of trying to buy out the competition.




RE: A Dish Best Served Cold
By Reclaimer77 on 12/19/11, Rating: -1
RE: A Dish Best Served Cold
By lightfoot on 12/19/2011 6:36:42 PM , Rating: 4
quote:
T-Mobile was LOOKING to sell.

Based solely on the size of the break-up fee that AT&T had to agree to, it is clear that T-Mobile WASN'T looking to sell - not to AT&T at least.

You'll note that usually the break-up fee is paid by the company being bought (to fend off counter offers,) not by the company doing the buying. This was a "reverse break-up fee." Usually created when the buyer knows that the deal will likely fall through or will not be a good business decision to the buyer (it prevents the buyer from backing out.)

This strongly implies that T-Mobile, and not AT&T, had superior leverage in the negotiation.

The end result is that even if the takeover bid wasn't entirely hostile, it wasn't entirely welcome either.

I would also argue that T-Mobile knows how to invest in their network a fair bit better than AT&T. They get surprisingly good results for having a customer base that is less than one third of the size of AT&T. And they don't gauge their customers in order to do so.


RE: A Dish Best Served Cold
By Reclaimer77 on 12/19/11, Rating: -1
RE: A Dish Best Served Cold
By JPForums on 12/20/2011 8:51:17 AM , Rating: 3
quote:
Based solely on the size of the break-up fee that AT&T had to agree to, it is clear that T-Mobile WASN'T looking to sell - not to AT&T at least.


Alternately, it means that they were very dependent on the deal going through. Failure to complete the deal would be detrimental at best. Deutsche Telekom was looking to exit the US market before AT&T approached them with the deal. Further, they would be looking to get the most they can for the deal. AT&T has already taken a huge amount of flak for making such a huge bid in the first place. I'm fairly sure that AT&T is exactly who they were looking to sell too. The problem is they didn't have much confidence that the deal would go through.

quote:
This was a "reverse break-up fee." Usually created when the buyer knows that the deal will likely fall through or will not be a good business decision to the buyer


No. The buyer would never lock himself into a deal that he knows will be bad. The seller is the one that would lock the buyer in. Given that AT&T offered the deal, it implies that the seller had serious doubts about the chances that deal would be allowed to progress and didn't want to commit resources to such a risky deal. AT&T offered the back out terms so that Deutsche Telekom would no longer have financial reservations to committing resources to the deal.

quote:
This strongly implies that T-Mobile, and not AT&T, had superior leverage in the negotiation.


Exactly. AT&T didn't just want spectrum, otherwise they would have modified the deal to just buy spectrum and rent it out to T-Mobile. They wanted the towers as well. Trying to deal with local governments to allow AT&T to build new towers has proven to be problematic. The tower space may in fact be the most important part of the deal (maybe not). It's just hard to get the government to let you buy a company if your reason is to get around the government. Contrary to popular belief, the customers had little to do with it. While AT&T would enjoy the added market share, there is a large risk. The new customers are brought in with billing plans that AT&T has decided is not profitable (enough). Some will switch to more expensive plans to get new phones, but those who don't are a drain on profits. Given that T-Mobile's customer base has more price sensitive consumers that AT&T's, many of them would either resist upgrades or move to a different carrier entirely.
The only thing going against Deutsche Telekom in the deal was they didn't see a future in the US market outside of a merger or some cooperative deal. They wouldn't have considered the deal if they didn't like it. The fact is, AT&T's deal was their best option.

quote:
I would also argue that T-Mobile knows how to invest in their network a fair bit better than AT&T.


T-Mobile's network was unsustainable with their current subscriber base and billing model. Sure it looks great from a consumer standpoint. Low bills, relatively good service (for some). However, it clearly wasn't a good investment strategy. Has anyone stopped to think that the pending failure of the number 4 provider and the current difficulties of the number 3 provider might not be entirely due to the evils of Verizon and AT&T. Don't get me wrong, they could learn a lot from Sprint and T-Mobile, but the US market demands performance (coverage, reliability, etc.) that apparently can't be sustained using the billing models that Sprint and T-Mobile employ. Further, the US customers are willing to pay the price to get it.


RE: A Dish Best Served Cold
By Dr of crap on 12/20/2011 10:47:37 AM , Rating: 3
Speaking as a payer of four phones on a family plan - I am not willing to PAY more for the service I get.

The service I get is great so far and I have no problems with it at all. I DO NOT have ATT.

If you can't get service all over, guess what? It's hard to cover the entire US and all the buildings. Very hard.
Not willing to bend a bit if you can't get service in the lower level of some building, or off the main road some where is your fault, not the carriers. Kind of like not being able to get high speed internet if you are not near a big city!


RE: A Dish Best Served Cold
By bobdelt on 12/20/2011 8:55:47 AM , Rating: 2
Incorrect- The break up fee was for ATT for this exact reason - the regulators would block the sale. Tmobile has been tied up for a year now, and couldnt seek out other offers. So as compensation, for Tmobile being a lame duck, ATT is paying up the ass.

This also can help make tmobile viable - a roaming agreement - some spectrum (I think) - and a lot of cash. It also makes it more appealing for another buyer, maybe a cable operator to purchase.


RE: A Dish Best Served Cold
By bobdelt on 12/20/2011 8:56:40 AM , Rating: 2
And they were actively looking to sell. Rumor was that week they were in discussions to be sold to Sprint. You don't get bought, without being for sale. This wasn't a hostile takeover.


RE: A Dish Best Served Cold
By nolisi on 12/19/2011 6:40:46 PM , Rating: 2
Um, T-Mobile practically grew out of nothing a decade ago and while they're currently in 4th place in overall subscribers, they've been competing against much larger firms that have been consolidating and buying out(AT&T/Cingular, Verizon/AllTel/et al, Sprint and its subisidiaries) that originated from existing landline telecoms.

The fact that they've become a national player and maintain relatively good customer service standings (especially compared to AT&T) in a market dominated by this old American telecom infrastructure+money makes it a unique player on the market and suggests that they invested in their network fairly intelligently and are still successful and competitive as a business.

DT may want to sell to accomplish other business goals, but


RE: A Dish Best Served Cold
By kidboodah on 12/19/2011 9:49:01 PM , Rating: 4
Grew out nothing? DT bought Voicestream/Powertel for over $50 billion and rebranded it...and Voicestream itself was just a bunch of patched together regional carriers and the old Sprint Spectrum network. And all their hardwork and additional money invested resulted in a company worth just under 4/5 as much as their original investment. Yeah....they're a "unique player" and "successful".


RE: A Dish Best Served Cold
By phatboye on 12/19/2011 7:00:14 PM , Rating: 2
Agreed, if you think for one second that T-mobile is going to spend even $0.01 of that 4 Billion on network upgrades you've got another thing coming. That money will likely get transfered to the parent company. Deutsche Telekom will then try to sell T-mobile to another company or at least sell it's assets to multiple companies.

I wonder if Sprint will try to buy them out again.


RE: A Dish Best Served Cold
By ShaolinSoccer on 12/19/2011 7:24:19 PM , Rating: 2
quote:
I wonder if Sprint will try to buy them out again.


I hope so. I absolutely LOVE Sprint! Them merging with T-mobile would only be a good thing (for me).


RE: A Dish Best Served Cold
By masamasa on 12/20/2011 11:04:38 AM , Rating: 1
Best not to start a forum thread with "you people". Sure to be rated a big, fat zero.


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