Deutsche Telekom can’t afford to wait for a decision on T-Mobile USA

The Justice Department’s effort to block AT&T’s acquisition of T-Mobile USA has sparked a flurry of stories claiming the smaller carrier will be living on borrowed time if the deal isn’t approved. CNNMoney claims that T-Mobile without AT&T “is a wireless white elephant,” StreetInsider.com says failure to close the acquisition “might mean auf weidersehen” for Deutsche Telekom’s U.S. business, and longtime analyst Roger Entner predicts that T-Mobile “will be left to a slow death” unless the deal goes through. Those autopsies are premature, however. T-Mobile USA is still a viable operator with a chance to compete with the big boys on its own. That’s why it’s crucial that the carrier move forward even as its fate is being decided in the Beltway.

T-Mobile’s most obvious vulnerability, of course, is its lack of a true 4G network. But a RootMetrics study of mobile data speeds earlier this year found that T-Mobile’s HSPA+ far outperformed AT&T’s 3G network and matched Sprint’s WiMAX service. And the major 4G network operators have yet to build out their portfolios of supporting devices, giving T-Mobile a year or two before its network becomes a real liability. If federal regulators manage to block the acquisition, T-Mobile will receive $3 billion in cash plus billions more in spectrum, thanks to the breakup fee AT&T will have to pay. Those assets could help T-Mobile begin work on the LTE network it will need in the next few years.

Critics also say T-Mobile exists in a kind of no-man’s-land in the mobile market. It can’t compete on price with no-frills service providers, and its nationwide network isn’t as solid as Verizon’s or even AT&T’s. That theory was supported earlier this year when T-Mobile was bleeding subscribers, but those losses slowed substantially during the most recent quarter, the carrier said last month. A closer look reveals even more encouraging figures: Monthly data ARPU (average revenue per user) increased from $11.60 to $13.60 over the year-ago period, and the company added more than 250,000 machine-to-machine connections. Those trends look to continue as data consumption ramps up and the Internet of Things gets legs. T-Mobile is still a profitable operator, posting a net income of $207 million in the latest quarter.

So how can Deutsche Telekom help shore up its U.S. business if AT&T’s acquisition is blocked? Most importantly, it should do everything in its power to expand its relationship with Apple to bring the iPhone to T-Mobile USA. That move seems highly plausible in light of recent reports that Sprint will soon carry the iPhone. It must invest heavily in its network to fill in the network holes that lead to dropped calls and delayed text messages. It must follow AT&T’s lead and use HSPA+ as an evolutionary step toward LTE, and it must develop and disclose a build-out plan and time frame to ease the concerns of investors and customers. And it must improve its marketing strategy, positioning itself as an affordable operator of a high-speed mobile network. (Also, it would help if it did away with its policy of throttling network speeds for high-end data users, which gives Sprint an opportunity to differentiate itself as a truly “unlimited” service provider.)

I still think AT&T and T-Mobile will offer enough concessions to ultimately gain approval. But if the deal were to fail, potential suitors such as Google, Sprint or a consortium of cable companies could swoop in and pick up T-Mobile. As the CNNMoney piece pointed out, though, T-Mobile “has largely sat on its hands” since the AT&T deal was announced rather than aggressively upgrading its network and building out its device portfolio. Mobile is a fast-moving space where handsets and networks are constantly evolving. T-Mobile could still become a major player if the deal fails, but if Deutsche Telekom doesn’t get more aggressive immediately — and if the AT&T acquisition is nixed — it will suddenly find itself left behind.

Question of the week

Can T-Mobile USA survive on its own?
Relevant Analyst
Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

Do you want to speak with Colin Gibbs about this topic?

Learn More
You must be logged in to post a comment.
2 Comments Subscribers to comment
  1. ^^^Deutsche Telecom does not seem to have the interest or the ability to make decisions quickly or invest in their US subsidiary. As long as that remains true, there is no choice but to seek a buyer.^^^ If not AT&T then a roll up with some of the remaining national carriers (MetroPCS, Leap/Cricket) or the cable guys.

    1. Thanks for the comment, Michael. You’re absolutely right that DT has been unwilling (or unable) to invest in T-Mo, but there’s a real danger that the AT&T acquisition is eventually blocked. If it is, and if DT continues to sit on its hands, it may not see another offer anywhere near AT&T’s figure.

Explore Related Topics

Latest Research

Latest Webinars

Want to conduct your own Webinar?
Learn More

Learn about our services or Contact us: Email / 800-906-8098