One of the recurring myths perpetrated by the supporters of the AT&T-T-Mobile merger is that AT&T is the only viable, economically able purchaser of T-Mobile, whose parent company Deutsche Telekom (DT) has announced its intention to pull out of the US market. Witness an email blast by the Communications Workers of America, which despite the reality that this merger will cost thousands of jobs, supports it:
Let’s start with the facts. A stand-alone T-Mobile is not an option for the future. German parent company Deutsche Telekom had announced that it was seeking a deal and had considered a speculative offer, Sprint and AT&T for the sale. T-Mobile did not have the cash or spectrum to invest in a next-generation, 4G LTE wireless network. And without a 4G network, there could be no future for T-Mobile, its customers and employees.
AT&T and T-Mobile use the same technology. Combining T-Mobile and AT&T spectrum turns two two-lane roads into a four lane superhighway. AT&T is willing to put up $8 billion in extra investment. And AT&T, a financially healthy company, will pay for the transaction in equity and internal cash flows.
In contrast, a merged Sprint/T-Mobile is simply unable to use T-Mobile’s assets to [sic] best advantage of U.S. consumers. Sprint still has not integrated its 2005 Nextel purchase, and it uses a different wireless technology than T-Mobile. Sprint’s “BB minus” non-investment grade bond rating would have increased the cost of capital that Sprint would have had to borrow for the T-Mobile purchase and network investment.
On this much I agree with CWA: Let’s start with the facts. First, it’s not a foregone conclusion that T-Mobile will leave the US market especially if, as we expect, the merger will be denied. Second, there are many potential buyers for T-Mobile other than “a speculative offer, Sprint or AT&T.” Whether AT&T offered the most money or was the most financially healthy suitor for T-Mobile is irrelevant if the merger between the two companies would violate antitrust law. Several antitrust experts, including the American Antitrust Institute and two antitrust lawyers have already concluded that this merger cannot pass muster.
If this Merger Fails, a stand-alone T-Mobile is Indeed an Option
To listen to the proponents of the merger, one would think that T-Mobile is in dire financial straits and that it has no other choice than to leave the US market. But that leaves out two inconvenient facts. The first is that T-Mobile is still profitable. Yes, it lost subscribers in the first quarter of this year, but one bad quarter is hardly the kind of “failing firm” to which antitrust authorities give more leeway when considering otherwise anticompetitive mergers. To be considered a failing firm, the following circumstances must be met, among others: 1) the firm must be unable to meet its financial obligations in the near future; and 2) it would not be able reorganize under Chapter 11 of the Bankruptcy Act. Clearly, T-Mobile doesn’t meet that test.
The other fact that is ignored by the merger proponents is if the merger fails, T-Mobile’s parent Deutsche Telekom will receive $3 Billion and another $2 Billion in spectrum and $1 Billion in roaming rights. Such a large infusion of cash, spectrum and roaming rights could be the cure for what ails T-Mobile. The FCC could also take action on several long-pending items that could be a boost to T-Mobile (and other smaller carriers): 1) reform the market for the special access lines that wireless carriers use for backhaul (a market dominated by, guess who? AT&T and Verizon); and 2) auction the 700 MHz “D Block” should Congress fail to pass legislation reallocating that spectrum to public safety by year’s end.
There are Numerous Potential Purchasers for T-Mobile if it Chooses To Leave the US Market
While Deutsche Telekom is certainly free to sell T-Mobile whether or not it is “failing”, it must do so in a way that doesn’t violate antitrust law. Let’s set aside Sprint for the moment, though a merger that would result in a combined 27% market share with no vertical integrations concerns (i.e., ownership of wireless and wireline networks) would pose less of a danger to competition than AT&T-T-Mobile, which would result in company with a combined 44% market share and provides a wireline broadband Internet access service. And let’s also assume that the smaller existing wireless carriers, Leap, MetroPCS, US Cellular, etc. don’t have the means or desire to make a reasonable offer. Even after removing those parties, There are still a good number of other credible potential purchasers for T-Mobile.
Who might those buyers be? There isn’t a wireline broadband Internet access provider today that doesn’t want mobile capability. Those providers want to offer a “quadruple play,” (i.e., landline phone, wireline and mobile Internet access, subscription TV) so that they can better compete with AT&T and Verizon. One possible candidate could be growing wireline carrier Century Link, which just bought Embarq and Qwest over the past several years? It just recently entered into an agreement to resell Verizon wireless service, so it clearly is interested in having a wireless capability. It has also been rumored as a possible purchaser of Sprint. Other potential buyers for T-Mobile could be the largest cable companies, including Comcast, Cablevision, Time Warner and Cox (which, despite the fact that it has significant spectrum assets just announced its intention to stop building own wireless network). Each of those companies offer wireless services of varying kinds and could benefit greatly from owning a national wireless network. For example, both Comcast and Time Warner Cable sell 4G wireless service through Clearwire (in which they are both investors) and both have the means to buy T-Mobile.
Another option for T-Mobile might be a foreign buyer or investor. In 2000, Deutsche Telekom bought the then-US Company called Voicestream, which was later renamed T-Mobile. Similarly, British company Vodafone has a 45% stake in Verizon Wireless. Some of the more robust International wireless companies include Celicom israel, Partner Communications (Israel), China Mobile and América Móvil (Mexico).
These potential suitors need not offer T-Mobile $39 Billion or an offer similar to it. Nor do they need to be as “financially healthy” as AT&T or have the same bond rating. The only relevant inquiries are whether any particular combination violates the antitrust laws and the FCC’s public interest standard.