Analysts say it comes as little surprise that AT&T Wireless reportedly has begun talks with Deutsche Telekom’s VoiceStream Wireless to explore a merger.
But what does surprise The Yankee Group analyst Roger Entner is a Wall Street Journal report appearing today that VoiceStream would take a controlling stake in such a merger. AT&T Wireless is three times the size of VoiceStream, the sixth largest wireless U.S. carrier.
It doesn’t make sense that VoiceStream is “supposedly sitting in the driver’s seat” unless the Seattle-based carrier plans to fork over money for a controlling interest in what would become the second largest wireless U.S. carrier behind Verizon Wireless, Entner said. That scenario seems unreasonable considering Deutsche Telecom’s commitment to curb its 68 billion euros of debt, the analyst said.
The merger talks could result in a $10 billion agreement, but they are preliminary, the Journal report said, citing people close to the discussions. AT&T Wireless and Deutsche Telekom declined comment.
It is no secret, however, the two companies have been in discussion with a number of other companies in recent months, according to the paper’s report. No agreements have been reached in any of those discussions.
Some analysts say the wireless sector is too crowded and that consolidation is inevitable.
The U.S. wireless industry exploded in the late ‘90s with phenomenal growth rates and expectations that data services would revolutionize how Americans use cellular devices. During that growth spurt, carriers opened their checkbooks offering huge amounts for available spectrum. But while the growth has tapered off, the carriers still retain the massive debt the incurred buying rights to the spectrum and investing in upgrades to their networks.
“There are simply too many competitors in the wireless sector and the market-share pie is being sliced up too thin to be healthy. An AT&T VoiceStream merger would make sense from many perspectives,” said independent analyst Jeff Kagan. “One, they have similar GSM technology. Two, they could combine their customers and networks and spectrums and both would be deeper and healthier for it.”
Analyst Entner said a potential merger would come under close scrutiny by federal regulatory agencies.
