Year-End Surprise: AT&T Abandons T-Mobile Deal

OK, this one surprised me – I knew the deal was in trouble, but it’s rare for an industry leader to make a $4B mistake.

I really thought the acquisition of T-Mobile by AT&T would go through, but it really is dead. Now, from a competitive perspective, this (as I said earlier) likely wouldn't have been great for the market - fewer competitors inevitably mean less consumer choice, less innovation, and higher prices. The deal would have further weakened Sprint via the creation of a duopoly of the two behemoths of AT&T and Verizon Wireless. But this perspective was tempered in my mind by my belief that AT&T's legal department had gamed out all of the alternatives here. I mean, who would risk a $4B breakup fee, which AT&T must now pay to T-Mobile's parent Deutsche Telekom? AT&T had to know the outcome before doing the deal. And their argument about consolidating spectrum is fundamentally sound; US spectrum policy remains a mess dominated by the Treasury's need to raise revenue when it should be gauged by overall spectral utilization. This problem isn't going away anytime soon; indeed, it will get worse.

What's the net-net? AT&T soldiers on, a little poorer but still #2. Verizon is pleased as punch, as is Sprint, who, while still weak, won't be the only one in such a state. And how T-Mobile will spend all that new cash remains to be seen; they've been losing subscribers, so perhaps a new marketing push and a little more capacity will win back at least a few customers who have strayed.

There's also talk of a T-Mobile/Sprint deal, which the Justice Department presumably wouldn't have such a big problem with. This would create at least the possibility of a third strong competitor, after all. But the essential technological and business incompatibilities would represent huge challenges, as would valuation, as both really should be valued primarily for their spectrum holdings and to a small degree their remaining subscriber bases. But, hey, some new management, a focus on LTE (which is where both need to go anyway), enhanced economies of scale - while most analysts have written this possibility off, I'm not so sure. And I do need to rebuild my track record here anyway, so, what the heck - I'm keeping my eye on this one.

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