March 21, 2011. New York. Yesterday, ATT announced it was purchasing rival T-Mobile from Germany's Deutsche Telecom for $39 billion. The deal would make ATT the U.S.'s largest mobile telephone carrier.
The deal which was announced yesterday is a cash and stock transaction including $25 billion in cash and $14 billion in ATT stock. Deutsche Telecom announced it would use almost half of the funds to shore up its own company. Executives have indicated they will use 13 billion Euros to pay down its debt and an additional 5 billion Euros to buy back its own stock.
Consumer protection advocates and anti-monopoly defenders have already come out against the deal saying that if the merger is allowed to go through, it will give ATT a 40 percent market share -- almost half of the total U.S. mobile telephone subscriber base. Free market advocates also point out that the deal will mean that three out of every four mobile phone users will be customers of the two largest companies -- ATT and Verizon.
At the end of 2010, U.S. mobile phone companies were ranked as follows:
Verizon - 31 percent
ATT - 27 percent
T-Mobile - 12 percent
Sprint - 12 percent
When the merger is complete, the playing field will look like this (based on 2010 numbers):
ATT - 39 percent
Verizon - 31 percent
Sprint - 12 percent
The next nearest competitor comes in at the low single digits. For all intent and purposes, giving three companies 82 percent of the market share will almost guarantee higher prices for consumers while the company will see lower costs. That, many anti-trust advocates argue, is the all too real consequence of giving one, two or three companies an virtual monopoly over U.S. consumers.
In a sign of the heated debate to come, CNBC business network trotted out the always colorful and outspoken Steve Forbes. Forbes vocally supported allowing the two companies to merge saying, "The best regulator of monopolies is the Free Market system". Forbes is best known for his business magazine, a failed run for the Republican nomination for U.S. President and his unwavering support of all policies which enrich the wealthy, including his widely-rejected 'flat tax'.
On the other side of the political spectrum is FCC Chairman Julius Genachowski, who called into CNBC this morning to argue that Mr. Forbes wasn't being completely honest with the facts. To counter, Forbes cited testamony from former XO Communications executives that he claims back up his statements.
With the deal's announcement, most mobile service carriers saw their stock prices increase. One reason is the high value being assigned by the purchase price. At $39 billion, the deal assigns a value of $1,147 for each T-Mobile subscriber. Using that valuation, Sprint would be worth $57 billion -- four times its current value.
Many consumer protection advocates fear the deal will force Sprint, the now third-largest carrier, to seek a merger with Verizon, creating only two major carriers to service the entire U.S. And while ATT's Randall Stevenson announced in a weekend conference call that the merger would create up to $40 billion in savings for the company, U.S. Senator Herb Kohl (D-WI) indicated his committee would investigate what a loss of competition would mean to consumers. Kohl is the Chairman of the Senate Anti-trust, Competition Policy and Consumer Rights Subcommittee. Overall, the deal is expected to take up to 12 months to complete.
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