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Monday, March 21, 2011

Synergy, Strategic Buying and Anti-trust--- A Big Telecom Deal

Couple of weeks ago, I tweeted about Sprint's takeover of T-Mobile USA news. I could not understand the "synergy" behind that looking at the Sprint's market share. But during the weekend AT&T shook the wireless telecom industry by agreeing to buy T-Mobile from Deutsche Telekom for $39 billions- almost at 75% premium. This is the largest telecom deal since 2004. And with this, AT&T will lead the US wireless telecom market which is currently being led by Verizon.

Source: Bloomberg
  Big deals always bring the Department of Justice, anti-trust laws and FCC to the picture. So, regulatory approval is really imperative here.

  • Per widely used theoretical concept of Herfindahl- Hirschman Index (HHI), anti-trust challenge is likely.
  • AT&T has one of the biggest lobbying powers in the Washington DC to get this deal considered as "done deal", though regulatory approval may take really long time.
  • Looking at the pre and post market shares of leading carriers, Verizon is not likely to be concerned about this deal unlike Sprint, who will still rank 3rd, but this time it will be by distant margin.
  • Sprint may prefer to acquire Clearwire Corp to increase its market share since it has already some stakes in Clearwire. 

Source: Bloomberg

  • In order to avoid potential anti-trust case, AT&T have to improve its services and to make some serious promises to please the Obama Administration. But T-Mobile is already the lowest rate carrier in the market and declining the rates any further will be a critical area to think upon for AT&T.
Customers of T-Mobile, please have patience. When I showed this news to my sister, the first reaction I got from her was "wow, we can get iphone now..." You will, certainly. There are some better phones and services are waiting in the backyard once AT&T gets green light from the Capitol.


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