Deutsche Telekom CEO Thinks AT&T Deal is Safe (T, DTEGY, VZ, VOD, S, LEAP, PCS)

DT CEO Rene Oberman is thinking in terms of spectrum. Right now the largest 4G LTE network belongs to Verizon Wireless, the joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone plc (NASDAQ: VOD). AT&T wants to acquire T-Mobile’s 4G spectrum and the German company’s cell towers in an effort to be able to blanket virtually the entire US with AT&T 4G coverage. The combined company’s subscriber numbers would also swell, to 43% of the total US market, compared with Verizon Wireless’s 34% and Sprint Nextel Corp. (NYSE: S) with about 16%. The other 7% will be divided among smaller carriers like Leap Wireless International Inc. (NASDAQ: LEAP) and MetroPCS Communications, Inc. (NYSE: PCS).

Oberman told a German newspaper that the combined company will boost competition in the US by adding to available network capacity. The real problem in the US isn’t lack of competition, it’s lack of spectrum. We’re already seeing the effects of this lack with the introduction of tiered pricing for wireless users. The more bandwidth you consume, the more it’s going to cost you.

The US Federal Communications Commission recognizes that this lack of spectrum will eventually lead to higher prices because supply will not be able to keep up with demand. From the FCC’s point of view, choking consumer use of wireless service slows down investment and innovation. AT&T would probably agree with that assessment. Where the FCC and AT&T part company is on the best way to boost US wireless capacity.

The DoJ is looking at the proposed merger through a lens that equates market share with market power. That may have been true once, but is not true to the same degree in the network age. There will always be an innovator to go after an underserved, overcharged market.

AT&T and DT are banking on being able to convince a judge that far from being anti-competitive, the proposed merger will be just the opposite. The DoJ’s track record on lawsuits of this kind is pretty lousy. In the past 20 years, the DoJ has thoroughly investigated just 4.4% of all proposed mergers and tried to stop less than 1%. Even then, odds are only about even that the DoJ wins in court.

Sentiment in the US is running pretty high right now against big corporations and big banks, but sentiment does not usually carry a lot of weight in court. AT&T’s & DT’s arguments supporting the proposed merger have a lot of merit, and that is what DT’s Oberman is banking on when he says he believes the deal will finally be approved. As strange as it may seem, the odds are in his favor.

Paul Ausick