December 2011

Deutsche Telekom AG, whose proposed $39 billion sale of T-Mobile USA to AT&T collapsed, has about a year before it needs to start the search for another partner amid rising costs for improving its network.

A breakup package that includes the payment of $3 billion in cash to Deutsche Telekom will only cover T-Mobile’s expenses for 12 to 24 months, said Wolfgang Specht, an analyst at WestLB AG in Dusseldorf. If T-Mobile doesn’t find a new partner after that time, it risks failing to generate enough operating cash flow to cover capital spending, he said. “Stabilization is the first step and then it’s about finding a new partner in the medium term,” said Specht, who has an “add” recommendation on Deutsche Telekom shares. “In the long run a standalone strategy seems impossible. Everything from here on is only a second-best solution.” T-Mobile is valued at about $19 billion, Berenberg Bank analyst Paul Marsch wrote in a Dec. 12 note, citing a survey the bank held with about 40 investors “a few weeks back.” To generate cash, Deutsche Telekom may reconsider plans to sell its tower network in the U.S., Chief Financial Officer Timotheus Hoettges said on a conference call today. A sale of those assets, which was considered until the AT&T agreement, may bring as much as $3 billion, said Jonathan Atkin, an analyst at RBC Capital Markets. In addition to the $3 billion in cash, T-Mobile will receive a package of wireless frequencies from AT&T in 128 market areas, including Los Angeles, Dallas, Houston, Washington and San Francisco. The separation agreement also includes a roaming deal lasting at least seven years, which Deutsche Telekom said will improve T-Mobile’s coverage to 280 million potential customers from 230 million. T-Mobile USA spent about $3 billion annually on capital expenditures in recent years, including network upgrades, the CEO said. Upgrading to the faster long-term evolution technology being rolled out by its competitors, including new spectrum, may cost $8 billion to $9 billion and such a process may take three years, RBC’s Atkin said.

Verizon Wireless couldn’t have asked for a better outcome to the AT&T/T-Mobile saga. Not only did its biggest rival fail to leapfrog Verizon in size, but AT&T wasted nearly a year’s worth of lobbying resources in the attempt. Where AT&T failed to pick up more 4G spectrum through a controversial merger, Verizon took the easier route toward building its 4G holdings, buying up licenses from cable companies. Most importantly, from Verizon’s perspective, AT&T/T-Mobile fizzled out with a whimper rather than imploding with a bang, resulting in no new regulations on the wireless industry and no Federal Communications Commission or federal court decisions to impede Verizon’s future consolidation ambitions.

Verizon’s official position on AT&T-Mo was that it remained unopposed to the merger as long as it imposed no new regulations or conditions on wireless operators. That was a pipe dream, and Verizon knew it. Any merger the size of the AT&T deal would surely have resulted in divestitures in multiple markets, along with restrictions on how and where AT&T used its new spectrum. And any conditions imposed on AT&T would have applied to Verizon when and if it sought to buy a competitor or more spectrum in the future. Verizon was hoping the minimize the damage, and it got its wish. The deal never got to a vote before Federal Communications Commission and never saw an official court date in the U.S. Department of Justice’s antitrust lawsuit. Of course, the failure of AT&T-Mo likely means any deal of such scale is out of the question for the foreseeable future. If Verizon had any ambition on making a bid on Sprint, those hopes are now dead, though an acquisition of a MetroPCS or Leap Wireless might still be possible. But given Verizon’s actions in the last few weeks it’s unlikely it was ever entertaining the possibility of buying Sprint or any other operator.

Sprint Nextel sued Comcast, Time Warner Cable, Cox Communications and Cable One, alleging that the cable companies infringe 12 patents related to transmitting voice calls over Internet Protocol networks. Sprint filed four separate lawsuits against the cable companies in the U.S. District Court for the District of Kansas in Kansas City.

"The cable companies sued by Sprint are continuing to offer phone services that use this technology without obtaining a license or permission from Sprint," the wireless company said. "Sprint alleges that each of these companies has infringed at least 12 [voice-over-IP] patents by selling cable voice systems and services that use the technology protected by the Sprint patents." The dozen patents at issue include some that Sprint had successfully sued voice-over-Internet provider Vonage over. A federal jury in September 2007 found Vonage infringed six Sprint patents, after which Vonage agreed to pay $80 million to Sprint to settle the lawsuit and to license Sprint's VoIP patent portfolio.

The idea of limitless growth gives sleepless nights to environmentalists, but not to Facebook founder Mark Zuckerberg. He espouses a law of social sharing, which predicts that every year, for the foreseeable future, the amount of information you share on the Web will double. That rule of thumb can be visualized mathematically as a rapidly growing exponential curve. More simply, our online social lives are set to get significantly busier.

As for Facebook, more personal data means better ad targeting. If things work out, Zuckerberg's net worth will follow a similar trajectory to that described in his law of social sharing. That law is said to be mathematically derived from data inside Facebook. In ambition, it is closely modeled on Moore's Law, which was conceived by the computer-processor pioneer Gordon Moore in 1965 and has been at work in every advance in computing since. Also an exponential curve, it states that every two years twice as many transistors can be fitted onto a chip of any given area for the same price, allowing processing power to get cheaper and more capable.