AT&T-T-Mobile Deal: Rivals Search for Answers

AT&T surprised the industry last month when it announced a planned $39 billion dollar T-Mobile acquisition that will have far-reaching implications for the competitive mobile market as well as the fast-growing mobile infrastructure space.

If consummated, the most obvious impact of the deal is on the competitive mobile environment, reducing the four major U.S. postpaid players to three while consolidating two relatively small players in the prepaid space to create the largest prepaid player. The deal will give the combined company a 43-percent share of the U.S. postpaid mobile market in terms of revenue. Also, the new entity would control 42-percent of the rapidly growing U.S. postpaid mobile data market revenue, which ATLANTIC-ACM forecasts will grow at a compound annual growth rate of 10.8 percent from 2009 to 2015. On the prepaid side, the combined company will have a 24-percent share of total prepaid revenue, which will vault it past Sprint to become the prepaid leader in terms of market share.

In terms of subscribers, AT&T will have 129 million subscribers if the deal closes, placing it well ahead of Verizon’s 94 million. This offers some scale-driven synergies, as the deal will allow AT&T cut costs and pressure vendors as a supersized mobile provider with significant market, and by extension, negotiating power.

This deal leaves Sprint, Clearwire, and LightSquared searching for answers as all were rumored at one point or another to be looking for a purchase or partnership with T-Mobile. Sprint, in particular, will be pressured by this deal, as it needs to continue its 4G network deployment and grow scale. There are several ways this will happen, including: continued cash infusion into Clearwire; a partnership with Lightsquared; or deeper investment in its own 4G network rollout; or some combination thereof. On the other hand, Sprint will have an increased opportunity in the prepaid space over the next year as uncertainty surrounding the deal will lead to a further exodus of prepaid customers from T-Mobile and AT&T.

Looking at this deal from AT&T’s perspective, the deal is strategically sound on several fronts. Setting aside market share and leadership position, much of the mainstream press has overlooked network compatibility and the significance of both carriers operating GSM-based networks. This compatibility is significant as it allows AT&T to immediately add coverage that would have taken years (five, according to AT&T) to build out on its own. While skeptics have pointed out that the additional network coverage in key problem areas for AT&T, the tag line of a more robust network would be very valuable at a time when AT&T begins to face competition for the iPhone.

Fedor Smith is president of ATLANTIC-ACM , a provider of strategy research, consulting and benchmarking services to telecommunications and information industry companies. An expert in niche- and channel-based marketing and operations management, Smith specializes in customer satisfaction and benchmarking projects for ATLANTIC-ACM, where he oversees proprietary projects as well as the firm's Carrier Report Card series, which serves as the telecommunications industry's principle source of benchmarking tools.