DOJ vs AT&T – A Pyrrhic Victory for Competition and Jobs

In stories and editorials, we are seeing cheering over the decision by the US Department of Justice (DOJ) suing to stop the AT&T and T-Mobile merger.  Fans see this as a victory for competition and jobs, but can it really be called a victory?  If we examine the harsh reality of a failed merger between AT&T and T-Mobile, it is hard to see the victors.

If indeed the merger fails, AT&T will apparently have to pay $6 billion in cash and assets to Deutsche Telekom as part of their $39 bid.  Deutsche Telekom on the other hand won’t come out well either as they stand to lose at least $12 billion because of the drop in T-Mobile USA earnings since the bid.  And because few other companies will have the same synergies and resources of AT&T, any other bids will be at even lower valuations, and Deutsche Telekom will lose far more than $12 billion.  Given T-Mobile USA’s $15.4 billion of debt and rapidly declining customer base, due to a lack of an LTE upgrade and iPhone, it doesn’t seem likely that Deutsche Telekom will continue investing in T-Mobile USA.

The result is that AT&T will be in a significantly weaker position to increase or even sustain capital expenditures especially when it comes to low return ventures such as rural LTE.  The prospect of a huge rural LTE boost for 55 million Americans seems to be fading with this latest DOJ action.  T-Mobile USA might still end up getting scrapped, and its customers and workers are left with significant uncertainty.  Wireless competition would then be reduced to three major wireless carriers with no rural LTE deployment to show for it.  Instead of joining AT&T’s workforce and union, T-Mobile workers are left with more dire prospects.

Regardless of one’s position on the merger, it’s difficult to see the plus side of a successful DOJ suit against AT&T.  The only way to salvage a good outcome would be for the DOJ to get some concessions from AT&T and declare victory.  Rural LTE and the National Broadband Plan would progress forward, AT&T would add some jobs, T-Mobile workers would have some certainty with a financially solid company, and consumers would be protected.

Update – How the iPhone crippled T-Mobile, T-Mobile is still dying.

Comments
  • Paul William Tenny

    If indeed the merger fails, AT&T will apparently have to pay $6 billion in cash and assets to Deutsche Telekom as part of their $39 bid.

    AT&T 2010 revenue: $124 billion
    AT&T 2010 net income: $19.8 billion

    It’s also not certain that AT&T would even have to pay.

    The result is that AT&T will be in a significantly weaker position to increase or even sustain capital expenditures especially when it comes to low return ventures such as rural LTE.

    AT&T 2010 revenue: $124 billion
    AT&T 2010 net income: $19.8 billion

    Instead of joining AT&T’s workforce and union, T-Mobile workers are left with more dire prospects.

    Instead of being fired in mass layoffs probably numbering in the thousands because of redundancy, T-Mobile workers are left with jobs.

    Jobs are saved, competition (albeit limited) is preserved, and prices won’t skyrocket. It’s win/win for America, and boohoo for couple of dozen AT&T executives hoping for millions in bonuses and a second reign as a monopoly.

  • Paul William Tenny

    Really? This doesn’t support blockquote in comments? Ugh.

  • George Ou

    Do you honestly believe that T-Mobile will survive independently? Deutsche Telekom has already said that they have no intention of investing in LTE and T-Mobile will be the only carrier without the iPhone. T-Mobile is bleeding customers as we speak.

  • […] in the wireless marketplace.  But if the US Justice Department wins its lawsuit, it will be a pyrrhic victory that will fail to preserve T-Mobile and will actually stifle rural LTE deployment.  The iPhone 4S […]

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