March 21, 2011

Over the weekend, the nation's second-largest mobile phone company, AT&T, agreed to buy the fourth-largest: T-Mobile. Currently owned by Deutsche Telekom, T-Mobile had been rumored to be for sale for months. Most speculation centered on a sale of T-Mobile to Sprint (#3 in the industry). So what is this deal likely to mean?

  1. For AT&T, this vaults them into the top spot in mobile phones (over arch-rival Verizon) with 129 million subscribers once the deal closes. T-Mobile and AT&T both operate networks with the same technology (GSM) so integration should be quick and coverage for subscribers should get better. Since the new partners have until now been competitors, closing overlapping facilities and sales offices should provide immediate financial benefits to the newly merged company.
  2. Verizon has been the number one provider and now will slip behind AT&T. But both companies will likely benefit. With only 3 major players left standing by this deal, the market becomes less competitive and you can expect to find fewer cheap deals on new phones and more expensive service plans.
  3. Sprint looks weaker than ever. Already a distant third with a much smaller network, ever-stronger competition from the two behemoths make it harder for Sprint to compete. Most analysts expected Sprint to acquire T-Mobile, and deal with AT&T removes Sprint's last chance for a major acquisition.
  4. For wireless customers (pretty much everyone who does not live in a cave) I expect the landscape to shift in two ways: better service and higher prices. Better service because AT&T will gain more spectrum and more towers, meaning fewer dropped calls for AT&T subscribers. Both Verizon and AT&T use the LTE standard for wireless networks and adding 34 million T-Mobile subscribers to that fold will solidify LTE as the next technology (Sprint uses WiMax - watch it fade). Higher prices due to less competition.
  5. Finally - beware of the stocks of wireline phone companies. Sure, millions of people still have traditional wireline phones at home and work (I do). Yes, the wireline companies tend to pay high cash dividends. But stop and think: ever hear anybody mention how they just had a new wireline phone installed? Know of any young people getting their first place who choose wireline service? You get the idea. Caveat emptor.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).