What’s next appears to be the big question on many a mind, as the Department of Justice (DOJ) seeks to block the proposed merger of AT&T and T-Mobile USA. Concessions by AT&T have been mentioned as a possible way through, while others say the deal is simply dead.
Christopher C. King and Josh James of Stifel Nicolaus Telecom Services posit a few scenarios going forward in a report released today.
“First, which we put an approximate 25 percent scenario of occurring, is AT&T’s ultimate success in winning a long court battle against the U.S. government. While not impossible, we view AT&T as clearly having a long, uphill battle against the government,” the report states.
But let’s say AT&T doesn’t have the time or the resources to devote to an arduous and costly legal battle, then what? King and James say there are other options for both companies.
“The second option, which we ascribe an approximate 20 percent likelihood to, is a takeout of T-Mobile USA by another U.S. carrier, with Sprint Nextel being the most likely suitor,” King and James write. “We ascribe a lower probability than most to this scenario playing out, with Sprint’s fairly-levered balance sheet and a looming October 7th 4G strategy announcement.”
The pair contends there’s only a 15 percent likelihood of Deutsche Telekom, T-Mobile USA’s parent company, recommitting to T-Mobile, which James and King say would entail “billions of more dollars in capital to fund a 4G national network build.”
Last but not least, and the option James and King say is most likely, to which they ascribe a 40 percent likelihood, is a piece-by-piece sale of T-Mobile, wherein the carrier’s assets are broken apart and sold to various carriers over the course of several years.
Ultimately, the report concludes that the fate of T-Mobile is far from clear. King and James suggest “continued uncertainty, particularly for shareholders of Deutsche Telekom and AT&T.”
“We remain with the inevitable conclusion that, were it not for regulatory interference, consolidation in the U.S. wireless industry would almost certainly come, sooner rather than later,” they write in their conclusion. “However, even with the DOJ now fighting the AT&T-T-Mobile USA deal, we do not believe that T-Mobile USA is likely to remain under its present ownership structure for an extended period of time, given its parents’ current strategy.”
