What If AT&T's T-Mobile Buyout Gets Shot Down by Regulators?
Most of the analysis of the proposed buyout has focused on the expense reduction and subscriber price leverage AT&T would gain through the deal. But the telecommunications giant has more profound motivations to make the acquisition. Its residential land-line business is dying as people switch to the use of cellular phones and VOiP, and AT&T's own foray into broadband-to-the-home puts it in direct competition with already-entrenched cable companies.
Observers note that the AT&T buyout of T-Mobile would give the larger company more wireless spectrum, but it's not clear whether this would help it solve its cellular traffic problems. AT&T's 3G network has been clogged with data ever since it began to market the Apple (AAPL) iPhone.
AT&T's earnings reports tell the story of a company which has just one division showing strong growth: cellular. The company's legacy business of providing home telephone service is in a period of attrition. In its 10-K filing with the SEC, AT&T states: "Revenues from our traditional voice services have been declining as customers have been switching to wireless, cable and other Internet-based providers." Wire-line voice service was 30% of the firm's revenue in 2008. In 2010, it was down to 23%.
Meanwhile, the AT&T U-verse fiber-to-the-home effort has nearly stalled. It added only 218,000 net subscribers in the first quarter to reach a total of 3.2 million. That leaves it a long way from catching cable leaders like Comcast (CMCSA) and Time Warner Cable (TWC)
At this point, cellular subscription sales in the U.S. are close to a zero-sum game. The number of people with wireless plans has leveled off in recent years, and if AT&T hopes to maintain rapid growth in this sector, it will have to take customers from its rivals. A buyout of T-Mobile would push it into a strong first place in cell phones, and it's going to need that No.1 spot: Its other core businesses have faltered.