Deutsche Telekom has a problem. It has effectively sold T-Mobile to AT&T (NYSE: T) for $39 billion. T-Mobile management has almost certainly begun to work on a transition which will include layoffs and changes in many of the ways its infrastructure has been built. Now, it appears that the AT&T deal is in trouble and Deutsche Telekom may have to take T-Mobile back. That would leave the German firm with the No.4 US wireless carrier and one which its customers believe has already lost its independence. The problem would also allow Sprint-Nextel to approach DT with its own buyout offer.
AT&T’s hurdles to complete the T-Mobile acquisition have moved well beyond the need for approval by the federal government. State governments have started to examine the transaction because of concerns about whether consumers will get socked with higher prices once one carrier disappears. There are also states which could face employment losses as AT&T absorbs its merger. Layoffs are bound to be a particularly sore point as the economy stagnates.
Sprint-Nextel filed new objections to the AT&T/T-Mobile transaction with the FCC. It called the two large cellphone companies–AT&T and Verizon Wireless–the “Twin Bells”, probably a reference to the Bell System that federal courts broke up three decades ago. AT&T argues that the T-Mobile combination will help solve a growing spectrum shortage. Sprint will likely argue that spectrum availability issues can be solved by the FCC if the agency will auction off more capacity.
Sprint’s argument will make it to the court of public opinion at least and may make it to the US court system as well. No one can know now whether the “monopoly” that AT&T Wireless and Verizon Wireless may have will affect the prices consumers pay over time. It is certainly a logical conclusion that markets with fewer competitors or markets will have less price competition.
AT&T is confident now that its plans will work out, but it will only take a few state government objections to foul them up. Sprint, in the meantime, has a strong case for the ownership of T-Mobile. The No.3 wireless firms has posted a number of quarters of losses, both financially and in terms of subscribers. It has 50 million customers, which is about half of what its two large competitors have now, and AT&T means to improve its size advantage.
Sprint knows that if the AT&T transaction can be broken, that T-Mobile will go back into play.
Douglas A. McIntyre