March 2011

Deflation has truly arrived: Big, profitable companies are going for free. That is, at least, what AT&T is claiming in relation to its T-Mobile USA acquisition from Deutsche Telekom. AT&T says the $39 billion cost of the deal is more than offset by the present-day value of synergies. What are those synergies? AT&T has estimated:

• An annual improvement in earnings before interest, taxes, depreciation and amortization of $3 billion, starting in the third year after the deal is completed. That comes from cost savings in areas like the companies' retail stores, advertising budgets, staffing and other administrative expenses.
• Improvements in average revenue per user. (T-Mobile contract users now generate $52 a month, well below AT&T's level of $62.57.)

AT&T says its synergies are achievable, but there have to be questions about revenue synergies. Many people are on T-Mobile because it offers lower prices—its price for an unlimited voice family package with two phones is $99.99 a month, compared with AT&T's $119.99. AT&T will try to persuade T-Mobile customers'to upgrade to pricier plans by offering them better phones. For some, that might be attractive. But there is likely to be a good chunk of T-Mobile's 26.3 million customers on contract who defect, either before the deal closes or in the year or two afterward, to other cheap providers.

Even if AT&T hits targets, the net present value of $3 billion in annual synergies, after deducting $7 billion of up-front integration costs and using an 8% discount rate, is only $16.3 billion. AT&T, in its $39 billion-plus synergy calculation, is including capital expenditures that won't have to be made as a result of the integration of the two companies' cell networks. In addition, it is counting wireless spectrum that won't have to be acquired by either company.

Unquestionably, the value of the deal is T-Mobile's spectrum, which will be particularly useful for AT&T as it rolls out the next generation of wireless technology, called LTE. So the deal has brought forward spending that would be necessary in the future. But whether AT&T really gets T-Mobile's existing cash flows for "free" is debatable. It depends on getting the deal through regulators without crippling concessions. And on holding on to T-Mobile's cost-conscious customers, while persuading some to pay more.

Best Buy plans to offer a 4G high-speed mobile broadband service based on LightSquared’s LTE service.

Sanjiv Ahuja, LightSquared chief executive, announced the new partnership on March 23 during a keynote address at the CTIA wireless industry conference in Orlando, Florida, but gave few details. “Working together we are targeting a trial in the first quarter of 2012, and over the next few weeks, we will provide a lot more details on this,” Ahuja said. Best Buy, which launched its Best Buy Connect service last July, currently offers customers a 3G mobile broadband data service using Sprint’s network. However the mobile data market in the US is moving quickly to 4G networks which offer download speeds at least 10 times as fast as 3G services. The deal with Best Buy represents a significant coup for LightSquared, which is controlled by Philip Falcone’s Harbinger Group and is building a nationwide LTE network that it plans to offer on a wholesale basis.

At a time when almost every newspaper in America withered, The Hill has thrived in the last eight years, growing faster than it ever has before. Once a weekly, the paper recently went to five days a week, with all-day coverage on the Web. Its newsroom has ballooned to 60 journalists. Of course, it helps that The Hill’s beat is Congress and Capitol Hill, where the good times have been rolling for just about everyone in the news business.

“There’s a huge interest in the nitty-gritty of what goes on here,” says The Hill's Hugo Gurdon of both his and his competitors’ fortunes. “It seems the interest in covering this area is not diminished.” That seems to be an understatement.

Just about everywhere you look, news sites and publications are adding more reporters to cover Congress. While many city halls and state capitals have lost news-media enterprise, Capitol Hill looks like journalism’s growth market. Last fall, the venerable National Journal underwent a massive makeover, hiring a platoon of big-name Washington journalists, including Fox News’s Major Garrett, and fattening its editorial ranks by about 10 percent, to a staff of 100. Bloomberg, already a big player on the Hill, has added 150 staffers for the launch of Bloomberg Government, a trove of news, policy data and wonk intel that costs subscribers $5,700 a year. Politico has a similar venture called Politico Pro and added about three dozen staffers for its launch last month.

Traditionally, intelligence agencies have relied on top-secret information to track changes in other countries. But wiretaps and secret intercepts didn't help U.S. officials predict the Arab Spring that has brought revolution across the Middle East and North Africa. In hindsight, officials say there could have found some clues about what was about to happen if they had read open sources more closely. Now they are searching for systematic ways to do that. The uprisings in the region have shown intelligence officials that they need new ways to understand what motivates people around the world. While traditional intelligence tools can help, they are limited in their ability to put their fingers on the pulse of society or anticipate fickle human behavior.