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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.
AT&T's Pitch for Free Mobile
It’s hard to imagine a debate that might stupefy more people than the one that’s brewing over government policies for airwave spectrum. But hang in there: The subject’s important. It’s also about to become hot.
Everyone’s starting to realize that the 547 megahertz of spectrum that can be used for mobile broadband isn't enough to accommodate the burgeoning number of consumers and businesses falling in love with smartphones, tablet computers such as Apple’s iPad, and other wireless communications devices. “If we don't act, the (wireless) consumer experience will be very frustrating,” Federal Communications Commission Chairman Julius Genachowski said. “The congestion will be very significant.” That means more dropped calls, slower transmission speeds, dead zones — and potentially high prices, with the heaviest mobile service users paying the most. AT&T said this week that it agreed to pay $39 billion for T-Mobile to avoid getting caught in a spectrum crunch. And you'll probably hear a lot more about airwave policy as the federal government prepares to coax some spectrum from one of the most potent forces in politics: television broadcasters. They collectively control some of the biggest blocks of airwaves but don't want to lose their ability to transmit video over the air and for free.
Spectrum fight: Mobile broadband vs. TV broadcasts
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.
Best Buy to offer 4G mobile broadband
Time Warner Cable Inc. is digging in its heels in a dispute with several big media companies over whether it can beam live TV channels to Apple Inc. iPads, exposing tensions between major TV-industry players as they wrestle with how to adapt to the Internet era.
Melinda Witmer, chief programming officer for Time Warner Cable, said in an interview that her company is "well within our rights" to transmit TV channels to any device in the home, as long as it sends signals through its cables and its "secure network," rather than the "open Internet." For that reason, the app is specifically configured to work only when linked to a subscriber's home Internet connection. Witmer's comments are the latest salvo in a fight that erupted last week when Time Warner Cable, without securing permission, released an iPad app that includes a lineup of 32 live channels that the cable-service provider carries on traditional TV. Those channels include MTV, Discovery Channel and Food Network, among others. Several media executives shot back quickly. At issue are interpretations of provisions within the tightly negotiated -- and lengthy -- agreements between media companies and cable operators. Several TV executives say their contracts specifically delineate rights for "cable television." One executive contended that distributors have rights only to what is specifically granted in their contracts. Another executive described Time Warner Cable's move as a "land grab."
TV Networks Cry Foul as Time Warner Cable Offers Channels via iPads at Home
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.
A boom for those who cover Congress
From France to Mexico, televised sporting events are drawing unprecedented audiences, transforming the fortunes of networks that have sports rights.
In the US, where the economic downturn and growing digital competition were weighing on viewing figures and advertising revenues just a year ago, this drove double-digit growth in networks’ profits in the fourth quarter. “Broadcasting right now . . . is about event television, live television, sports events,” Jeff Zucker, former chief executive of NBC Universal, the US network owner, told the Financial Times digital media conference this month. “That’s what is really attracting . . .the real eyeballs and the real advertising dollars.” Zucker warns that, for networks, sports rights could be growing too costly. Media revenues now account for 35 per cent, or €16bn ($23bn), of a €45bn global sports market that has averaged 6 per cent annual growth since 2005, according to Lagardère, the French media group. “The biggest fear I have is that those new fees [paid by cable and satellite operators to networks] will be taken in and just given to the sports leagues, and that kind of defeats the purpose,” he says. Yet, even as sports boost networks in an increasingly competitive media marketplace, the rising cost of securing rights to broadcast live events is threatening the basic economics of the industry.
Television: Inflated assets
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.
A New Tool For U.S. Intelligence: Google?
Telefónica is to invest more than $14.6 billion in Brazil by 2014, the company’s president said. The money will be used to modernize and expand Telefónica’s existing telecoms network, as well as to provide new fixed line, mobile phone and cable television services, said César Alierta, worldwide chairman of Grupo Telefónica. The investment will also cover spending on operating licences. Telefónica is well known in Brazil but it is also one of the most heavily criticized in terms of customer services. Mobile phone tariffs in Brazil, as well as roaming charges, are among the highest in the world. This new investment marks a 52 per cent increase over what the company spent in the country over the past four years.
Telefónica reveals $14 billion Brazil investment plans
The Internet freedom work at the State Department uses taxpayer dollars to combat the stranglehold many foreign leaders have over Internet use in their countries and the Obama Administration apparently considered rushing these funds out the door to save them from budget cuts. "We certainly all feel the climate of austerity. There has been pressure to just push money out the door and just spend the money, but what we've decided to do — and what we owe the taxpayer — is to make it a strategic process," a State Department official said.
State Department official: Internet freedom work won't be rushed
The Australian government has announced it will block free Web-based email services like Gmail and Hotmail due to security concerns. The move comes in response to a security audit that found staff in the Prime Minister and Cabinet department were allowed to access the unsecured email services for business reasons. The auditor said the public email systems provide a point of entry for hackers and could lead to information disclosure.
Australian government bans free email services over security concerns