Wednesday, December 21, 2011

AT&T - T-Mobile Final Thoughts

Monday night, AT&T and TMO announced their $39B merger was dead.  The only surprise was that they did it so quickly; as I've written before, there was a real danger that egos would prevail and AT&T would distract itself by fighting a losing battle with the regulators rather than turning its attention to competing with Verizon.

I went on CNBC's Squawk Box Tuesday morning (sorry; no video link) to offer my thoughts on whether AT&T had made a bad bet.  I'll repeat and expand what I said there:  It was a risky bet - which is why TMO, advised by my former counsel at Wachtell, insisted on the mother of all break-up fees.  But it was a bet worth taking.

The good news for AT&T is that they aren't chasing here.  They can now turn to other options, whether it's acquiring DISH, buying spectrum or capacity from Clearwire, or doubling down on a wi-fi offload strategy.  None are ideal, but they've got to play the cards they were dealt.

Another topic that came up in my interview yesterday was whether scuttling this deal was good for consumers.  It's easy to see why it would be; TMO gets to keep playing to the low end, and there should be more price competition.  But that's also a facile and short-sighted point of view.

This timely WSJ article today touches on, at a high level, some of the fundamental economic headwinds that face U.S. wireless carriers.  It's a vast country, and providing the coverage, capacity and data speeds that consumers want is incredibly costly.  Carriers spent $25 billion on their networks last year.  Only AT&T and Verizon got a return on capital.  Think about that, and what it means over time for consumers.  We're paying for marginal price competition today with hobbled companies and under-investment tomorrow.  A cash-losing Sprint or T-Mobile can't innovate, can't bridge the "last mile" or the "digital divide", and will ultimately fail - leaving the monopoly or duopoly DC is so fearful of - if they can't afford to invest capital in their network.  

So no, the FCC and DOJ did consumers no favors long-term in preventing this deal.   It's time they updated the tools in their "preserving competition" toolbox for the reality of today's wireless industry.

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