If the AT&T Acquisition Collapses, What Will T-Mobile Do?

Mike Dano, FierceWireless, The Motley Fool
Updated

As AT&T (NYS: T) struggles to push through its proposed acquisition of T-Mobile USA, the question becomes: What will T-Mobile do if AT&T's acquisition of the company fails? Much of the arguments for the merger revolve around T-Mobile's inability to continue as an independent company, but now some analysts are predicting that the deal only has a 10 percent chance of getting approved.

If AT&T is unable to close its acquisition of T-Mobile, AT&T will be forced to give T-Mobile $3 billion in cash and $3 billion in spectrum and roaming deals. While that will probably prop up T-Mobile in the short term, the company will still face the same problems it does today: sluggish or negative growth and increasing competition on the high end (AT&T and Verizon (NYS: VZ) Wireless) and the low end (Leap Wireless (NAS: LEAP) and MetroPCS (NYS: PCS) ). So what are T-Mobile's options?

First let's look at T-Mobile's network. The nation's fourth largest carrier operates a HSPA+ 42 Mbps network that can provide speeds comparable to Verizon Wireless' LTE network. That's pretty good, right? With additional cash and spectrum from AT&T, T-Mobile could continue to expand and enhance its current HSPA network. Indeed, T-Mobile and Nokia Siemens Networks announced last year that they could potentially keep upgrading T-Mobile's current HSPA network to eventually support theoretical speeds of 650 Mbps. While it's unlikely that such technology would actually provide real-world speeds anywhere near that figure, it's clear that T-Mobile will be able to provide faster and faster speeds using its current HSPA network.

But an increase in network speed is only part of the equation. T-Mobile will also need more capacity to support future growth and users' increasing appetite for data. That capacity will have to come from new spectrum. So where could T-Mobile get new spectrum? Here are some options:

Clearwire. T-Mobile was in talks with Clearwire last year over a possible wholesale deal. And with Clearwire's (NAS: CLWR) plans to move to LTE-Advanced technology, such a partnership makes even more sense today. T-Mobile could also partner with LightSquared.

Comcast and Time Warner Cable (SpectrumCo). Comcast, Time Warner Cable and others purchased $2.4 billion in AWS spectrum during the FCC's 2006 auction, and the venture has been sitting on the unused spectrum since then. T-Mobile could potentially purchase or lease that spectrum to boost its current AWS-based HSPA network.

AT&T. A network-sharing deal between AT&T and T-Mobile could be the result of a failed merger between the companies. Such network-sharing deals are becoming commonplace in other parts of the world, notably Europe. But a network-sharing deal probably would look very different from the current merger plans AT&T has put on the table. For example, AT&T's current acquisition plan involves moving all of T-Mobile's current HSPA subscribers off its AWS spectrum. An AT&T/T-Mobile network-sharing agreement likely won't involve such gymnastics.

An auction. The FCC is currently working to auction additional AWS-3 radio waves, and T-Mobile could be the first bidder in line. The FCC is also working to auction TV broadcasters' spectrum. However, such auctions probably won't happen quickly, and if T-Mobile's capacity constraints are anything like those the other carriers are experiencing, it could need to find a fix sooner than later.

But T-Mobile's network, while obviously important, is only part of the problem. While addressing network speeds and capacity, the carrier will also have to maintain a portfolio of devices that will keep it competitive with the likes of Verizon Wireless and AT&T. T-Mobile largely has kept pace on Android, BlackBerry and Windows Phone, but it hasn't managed to land Apple's iPhone. This is likely due to the fact T-Mobile operates a 3G network in the AWS band, which the iPhone does not support. If the lack of an iPhone continues to hound T-Mobile, the carrier will either have to convince Apple (NAS: AAPL) to support AWS or it will have to find a way to offer a T-Mobile iPhone working on another network (a network-sharing deal with AT&T could pave the way for this option).

Finally, if AT&T fails in its bid to acquire T-Mobile, an independent T-Mobile will also have to maintain a competitive position in the market. So far the company's efforts in this area have fallen flat: T-Mobile lost customers in the first two quarters of this year -- despite its aggressive data, voice and device pricing. So how will T-Mobile be able to keep pace with larger competitors that could potentially offer more devices and faster network speeds? This is where T-Mobile could get inventive -- the carrier's Bobsled Facebook calling service is a possible step in the right direction. T-Mobile's Kineto-powered Wi-Fi calling service is another possible example of an out-of-the-box strategy. Basically, T-Mobile needs to think beyond its ads featuring that girl in the red dress.

But T-Mobile will have to stay nimble and flexible if it wants to succeed as an independent company. I think it's possible, but I'm not giving it good odds.

This article originally published here. Get your wireless industry briefing here.

Related Stories:

At the time thisarticle was published The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Advertisement