11-25-2011, 01:25 PM
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From the WSJ: Quote:
For T-Mobile USA parent Deutsche Telekom AG, $3 billion will be cold comfort if its deal with AT&T Inc. collapses.
The German telecommunications giant has long sought a graceful exit from the U.S. market, where T-Mobile is outmatched by larger competitors, behind the curve in developing a next-generation network and the only national carrier not to offer Apple Inc.'s iPhone.
AT&T's $39 billion offer provided a promising solution. If it falls through, Deutsche Telekom will reap a windfall of cash and spectrum rights, but it will be back to square one with an asset it has already told the world it doesn't want to keep.
On Thursday, AT&T booked a $4 billion charge to cover its costs if the deal fails, a first acknowledgement that the odds are now greater it won't succeed. The companies also pulled their application for approval from the Federal Communications Commission, which moved Tuesday to order a trial-like hearing on the merger.
AT&T and Deutsche Telekom say they will continue to try to close the deal, but analysts consider it increasingly unlikely that they will.
If it fails, Deutsche Telekom will need to find a new way out of the U.S. The alternative—trying to build a sustainable presence here—would be expensive and unpopular with investors.
The spectrum and $3 billion in cash promised by AT&T won't solve Deutsche Telekom's network shortcomings, and reversing course after spending a year explaining why its needs to leave the slow-growing U.S. market would be tricky.
A failure of the deal would make it a lot harder for Deutsche Telekom to get the sort of price it persuaded AT&T to pay. Suitors could include Sprint Nextel Corp., which was in talks with T-Mobile before AT&T announced its deal. But Sprint is heavily indebted and scrambling to cover the costs of an expensive network upgrade and a costly deal to carry the iPhone.
Analysts at Bernstein Research speculate T-Mobile might find a partner in the cable industry. Other options include floating T-Mobile in an initial public offering of stock. A Deutsche Telekom spokesman on Thursday declined to comment on its plans for the unit should the AT&T deal fail.
T-Mobile USA, once at the center of Deutsche Telekom's growth strategy, has become a drag. The unit has lost 850,000 contract customers this year. In the third quarter, sales fell 2.3% to $5.23 billion, though earnings rose 3.8% to $332 million.
Uncertainty over T-Mobile's future has complicated the company's relationship with customers and vendors. T-Mobile has responded by competing more aggressively for the wireless industry's fast-growing low end even as it loses its grip on the customers who sign lucrative service contracts. The push has been successful: T-Mobile gained 826,000 prepaid customers in this year's first nine months. But it remains unclear whether those gains will be sustainable given the lower profitability of serving prepaid customers and the costs of maintaining T-Mobile's national wireless network.
T-Mobile has introduced plans such as a $30-a-month no-contract plan available at Walmart that caters to people who primarily use texting, email and Facebook to communicate.
The company is also marshaling its marketing force behind $50-to-$70 prepaid plans that it introduced earlier this year. To encourage sales, it set up an incentive structure with high up-front payments for its dealers.
T-Mobile is also the only national carrier without a plan to roll out the next-generation, fourth-generation mobile broadband protocol known as long-term evolution, or LTE. That will leave it at a disadvantage to its rivals who can draw customers with the pricier devices that operate on the 4G service.
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