AT&T’s loss with T-Mo likely to be another bidder’s big gain

The wheels are falling off AT&T’s proposed acquisition of T-Mobile USA: The Department of Justice has filed suit to block the deal on anticompetitive grounds, the Federal Communications Commission doesn’t like it, and AT&T is already hedging its bets by setting aside the $4 billion it would incur in breakup fees should the deal fail. But the acquisition of T-Mobile presents an opportunity to have a major presence in one of the world’s most-advanced mobile markets. Regardless of whether the AT&T deal goes through — and it’s a long shot now — at least one other telecom company is likely to win big.

DealBook reported this week that AT&T is “working on an audacious 11th-hour deal” to gain approval for the T-Mobile takeover: If the deal went through, AT&T would sell a substantial chunk of T-Mobile’s subscribers and some wireless spectrum to Leap Wireless. That move is unlikely to assuage federal regulators, however: As DealBook noted, it would still result in a virtual duopoly where AT&T and Verizon Wireless dominate also-rans like Leap, MetroPCS and even Sprint. So it seems the only way a deal could happen is through a series of complicated moves. Leap and MetroPCS could pull the trigger on a long-rumored merger, for instance, then buy the T-Mobile assets to become a major power. But such a contrived scenario is extremely improbable.

So what’s next?

Instead, T-Mobile could be targeted by plenty of players, from cable and satellite TV providers to private equity firms. But mobile is a different game that can be brutal on newcomers — just ask Cox Communications, which recently shuttered its wireless business. The companies that are the best fit for T-Mobile are these three players that already know the mobile game:

  • Sprint. Yes, there are serious network-compatibility issues with a Sprint and T-Mo tie-up, and yes, Sprint knows those issues better than anyone, thanks to the Nextel train wreck. But one of T-Mobile’s biggest liabilities is the lack of a path to 4G, and Sprint recently said it plans to upgrade to LTE Advanced by the first half of 2013. Sprint could pick up T-Mobile and operate both networks, integrating the two via LTE. The combined companies would claim about one-fourth of the U.S. mobile market, making the market more competitive — not less. Sprint hasn’t commented on any potential plans regarding T-Mobile.
  • America Movil. The Mexico City–based telecom provides services to more than 200 million subscribers primarily in Latin America, and it operates the small prepaid TracFone business in the U.S. The company is headed by Carlos Slim Helu, a Mexican billionaire who has long had an interest in the U.S. Expanding from prepaid to postpaid would be a big step, but Helu has the bankroll and the mobile expertise that could help T-Mobile once again become a major player.
  • Vodafone Group. A massive force in worldwide mobile, Vodafone operates networks in 30 countries and has partner networks in 40 more. And while it owns 45 percent of the joint venture Verizon Wireless, it has voiced its dismay at Verizon’s unwillingness to pay annual dividends. Meanwhile, Vodafone’s networks employ the same GSM technology used by T-Mobile USA, and some of them have begun to deploy LTE services. Coming to terms with Verizon to dump its part of the joint venture wouldn’t be easy, but it might be worth it for Vodafone give up its minority stake in Verizon Wireless in exchange for full control of the lesser carrier.

Deutsche Telekom has long wanted to dump its U.S. business, but T-Mo generated $332 million in net profit in the most recent quarter as it gained 126,000 new users. That could make it attractive for a mobile player looking to increase its presence in the U.S. And that could change the landscape in a big way.

Question of the week

Who do you think is most likely to acquire T-Mobile should AT&T’s bid fail?
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Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

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