Battle over AT&T, T-Mobile deal begins in Washington

AT&T is arguing that the its deal to buy T-Mobile fits in line with the Obama Administration’s plans to bring broadband to 95 percent of the country.

The company is arguing that combining their spectrum assets is the only way to alleviate constraints. Craig Moffett of Bernstein Research said the companies will also likely be willing to promise reduced consumer rates and the unionization of the wireless workforce to appeal to Democrats. Barclay’s Capital’s James Ratcliffe said that the regulatory challenges the deal will face are surmountable, but certainly not easy. Of course, the major obstacle to both players is the risk that the deal will not be approved because of antitrust concerns. AT&T has said that it will be able to win approval for the deal, a sentiment analysts seem to echo. “AT&T’s regulatory team is high-quality, and we don't think the company would be going down this path, (given $3 billion breakup fee, especially), if they didn't have high confidence of success,” Ratcliffe wrote.

Analyst Rebecca Arbogast of Stifel-Nicolaus said that she does not believe that even a Democratic Administration will be “stubborn about maintaining four as opposed to three nationwide wireless carriers,” but will be concerned about moving toward a wireless duopoly. She added that some state attorneys general may be able to weigh in, but are unlikely to act on their own to block the deal. From a business perspective, analysts say that the proposal is a win for both AT&T and Deustche Telekom, which will be able to easily integrate their networks. This deal is also a positive for Verizon, some analysts have said.

Ratcliffe wrote that, should the merger go through, “it would likely result in a more stable, less aggressively competitive wireless market in the long term. In the near term, the deal will almost certainly result in distraction at both AT&T and T-Mobile as they work to get regulatory approval for the transaction.” As for speculation that Verizon may now counter with an offer to buy Sprint, many analysts do not see that happening. Analysts universally agree that Sprint is the biggest loser from the deal. Also standing to lose in this deal are tower companies, as there will be a large reduction in cell sites. Another winner mentioned in analysts reports is Apple, which can now market its iPhone to T-Mobile’s customer base without having to make a new version of its handset.

Taking a wider lens, Arbogast of Stifel-Nicolaus said that the merger could change the conversation about spectrum, as joining forces could reduce spectrum demand and “possibly lower auction revenue estimates."