Now that the flurry of last week’s trade show is in the rear view, I find myself continuing to contemplate the ramifications of AT&T’s planned acquisition of T-Mobile USA. (For about 0.003 seconds, I had myself thinking about a trade show coming up here in May. It seems my short-circuited/trade show-fatigued brain wanted to trick myself into believing we have yet another big, big trade show to think about this year. Ha ha! No, that’s in 2012! Just goes to show that I need to really be on my toes this April 1 or risk getting duped on any number of fronts.)
On a more serious note, one of the things that a lot of folks are worried about has to do with pricing and the idea that this latest round of consolidation will lead to higher prices in general. This week, headlines are centered on AT&T CEO Randall Stephenson’s comments that he doesn’t believe it’s necessary for regulators to implement price controls as a concession in the deal. According to The Wall Street Journal, Stephenson says he’s not sure pricing controls are relevant considering how data prices have dropped over the past several years. AT&T has been hammering on the point that over the last 10 years, this industry has seen a number of large-scale tie-ups and prices still fell by 50 percent.
While considering the pros and cons of this deal, pricing wasn’t real high on my list of concerns. I’d expect AT&T to use the T-Mobile assets to structure a stronger prepaid offering, maybe borrowing a page from Sprint and its prepaid strategy. Of course, that means more competition in prepaid for Sprint, which often comes out with new and cool stuff only to be beaten down for … whatever reasons. But considering how T-Mobile’s customer base increasingly has been about prepaid (and sometimes it feels like a love/hate type of situation over there), it makes sense for AT&T post-deal to create a scenario where it not only caters to the high end but also to the mid-range and lower-end segments of the pricing picture. You can say it’s already doing that, but I’d expect it to do so on a grander scale.
Verizon Wireless has done a good job of establishing its expertise at the high end. Sprint’s all about simplicity and making things easy to understand price-wise, and T-Mobile for years has been considered the leader in the low-end/more affordable/call-it-what-you-want pricing. You can argue until the cows come home about who’s network is better and where and when, but basically, if price is your No. 1 priority, you’ll probably go for T-Mobile, or maybe Sprint.
In an interview with CNBC last week, Stephenson acknowledged that T-Mobile has a “very good” prepaid business and platform, and AT&T is excited to get access to it. Of course, AT&T has a prepaid offering (remember the first GoPhone from AT&T Wireless?), but I don’t think it has always been particularly aggressive in going after that segment directly. Verizon Wireless also offers prepaid, but I don’t think it’s generally considered the type of place where Verizon seriously wants to increase its presence in a big or direct way. (T-Mobile in the fourth quarter reported contract ARPU of $52 while prepaid ARPU was $19.)
On the issue of whether the deal means T-Mobile customers will get access to the iPhone, it should be noted that more than a million people already are using their unlocked iPhones on T-Mobile’s network. T-Mobile USA CEO Philipp Humm acknowledged as much before the acquisition was announced. But at that time, he also pointed out that T-Mobile was the first carrier to launch an Android phone – the G1 with Google in October of 2008. If anyone ought to be concerned about losing T-Mobile from the roster, it would seem to be Google. Sure, it’s made inroads with other carriers since then, but T-Mobile provided a nice entry for Google when it needed it. Taking that option out of commission would seem to leave some impact.
Here are a few more random observations.
• The break-up fee of $3 billion shows how confident AT&T is in getting the deal done. Obviously, AT&T’s lawyers scoured every detail and floated the idea before it got into the public eye so they have their arguments in hand.
• It’s interesting that now AT&T is referring to competing carriers to prop up its talking points for the deal, as in the “U.S. market is fiercely competitive and will remain so.” In another life, I’m not sure how much AT&T executives would even acknowledge that competitors exist outside of Verizon. But now they’re saying that Verizon Wireless is deploying LTE nationwide; Sprint has the No. 1 spectrum position; MetroPCS and Leap Wireless combined serve 22 of the top 25 markets; LightSquared expects to cover 260 million people in 2015 with its wireless broadband network; and U.S. Cellular and Cellular South are deemed “super regional players” that hold strong positions in many of their service areas, “creating intense competition.”
• Over-the-top (OTT) players also are generating competition for wireless carriers using Internet technology and VoIP. Many industry professionals have been talking about how to deal with OTT for a while now, and, ironically, the parties in this acquisition are using OTT to further bolster the argument for AT&T to get this deal done.
• The spectrum crunch is part of the argument working in AT&T’s favor. AT&T often says that its mobile data traffic grew 8,000 percent over the past four years and by 2015, it expects that traffic to be eight to 10 times what it was in 2010. With this deal, AT&T gets more spectrum sooner rather than later. So, crisis over for AT&T? Not exactly; it also makes a point to say the entire industry will need additional spectrum to address the explosive growth in demand for mobile broadband.
• Much has been made about what will be lost if/when T-Mobile goes away. But things haven’t exactly been going splendidly for the U.S. arm of Deutsche Telekom. Back in January, the company went down the “challenger” path and said it was taking steps to improve customer acquisition and retention, including programs to further reduce the churn rate. In the fourth quarter, T-Mobile’s net customer losses were 23,000 compared to 371,000 net customer additions in the fourth quarter of 2009. What’s the point? The company has to do something, and hooking up with AT&T obviously is where management thinks it can do best. And they probably liked that $39 billion number, too.
Will we wake up tomorrow and find out this deal was all part of a grand two-week prelude to an April Fool’s joke? Of course not. That would be silly. But considering the wild way things are going, I’ll be ever vigilant about what is said and written tomorrow. You never know when a doozey will turn out to be just a doozey or the real deal.
