The wave of M&A among US operators has not ended with Veirzon’s buyout of Vodafone, the Softbank/Sprint/Clearwire deal and MetroPCS’s merger with T-Mobile USA. The third and fourth cellcos could still join forces ‘ an outcome predicted by many for years ‘ while AT&T continues to tease investors about its foreign expansion plans.
T-Mobile’s CFO said this week that a merger with Sprint would create a ‘more competitive environment’ for US mobile consumers, highlighting that, despite all the recent deals, there are still major challenges in mounting viable competition to the big two carriers. Braxton Carter told Reuters, at the Goldman Sachs Communacopia investor conference in New York, that Sprint/TMo was the “logical ultimate combination’ and that a union was “not a question of if, but when’.
He pointed out that, together, Sprint and TMo would have a similar user base to that of Verizon and AT&T, which currently have market share of over one-third each. However, even if Sprint, under its new majority owner Softbank, were interested in a marriage, it would have to get past antitrust regulators, which have been wary of reducing the number of carriers in the market. However, while AT&T’s planned takeover of T-Mobile was blocked, the latter was cleared to merge with MetroPCS on the basis this would create a more viable contender.
Meanwhile, AT&T is reported to be evaluating opportunities to buy into the European market while the region’s recession keeps prices low, and its telecoms saturation drives consolidation. However, it would face a very different competitive landscape to that at home, especially if it wants to make a pan-regional play. That would mean the cost of a major acquisition, such as the rumored purchase of Vodafone, or coping with a fragmented and highly price sensitive area with a series of smaller transactions.
Analyst Craig Moffett of MoffettNathanson criticized AT&T’s purported plans, telling Bloomberg: ‘There simply aren’t sufficient economic benefits to global scale. Anyone who has tried it has learned the hard way that the economic benefits never materialize.’ He went on: ‘It would be a very risky transaction. If AT&T bets wrong and what looks like a bad European market gets worse instead of better, AT&T could fairly quickly find itself struggling to finance its dividend, and that has to give AT&T pause.’
AT&T’s CEO Randall Stephenson spoke about the European market at a conference this wseek, claiming that the lack of a robust market for mobile applications and services offered growth opportunities ‘ Europe has yet to benefit as much as the US from the transformation of the mobile internet experience, he argued, saying: ‘Why has this thing not really taken off to the degree that it has in the US? That market is going to evolve in Europe. I think it’s going to evolve very quickly.’ However, he agreed with Moffett that price competition, fragmentation and heavy regulation can make it hard to operate cost effectively, while Europe is coming out of recession more slowly than the US and has higher unemployment.
Another cautious analyst is John Hodulik, who wrote in a research note that a Vodafone takeover would be ‘transformational’ for AT&T, which has retreated into its domestic business after a series of adventures at the turn of the century, but he cautioned: ‘While AT&T may believe it sees a bit of light at the end of this very long, dark tunnel, a deal to acquire Vodafone’s remaining assets would come with a new set of risks.’