by Cynthia Wilson | January 28, 2012 8:00 am
When a merger collapses, there’s often a downside for the company being acquired, particularly if the company had debt or competitive issues prior to the agreement. But AT&T’s (NYSE:T) failed bid to buy USA T-Mobile, the U.S. wireless arm of Deutsche Telekom (OTCQX:DTEGY), not only has given T-Mobile new life but has made it a stronger rival to AT&T in some markets.
When regulators shot down AT&T’s proposed $39 billion acquisition of T-Mobile late last year, AT&T was forced to pay T-Mobile $3 billion in cash and $1 billion worth of spectrum, per the terms of T-Mobile’s breakup-fee agreement. The payout was largely responsible for AT&T’s fourth-quarter 2011 loss.
Before the merger announcement, T-Mobile already had the largest coverage capability in 4G, which provides higher speeds for downloading video and websites faster. But its reach was limited. Now, with the pending spectrum expansion it will get from AT&T, T-Mobile takes ownership of an additional 128 cellular markets, including 12 of the top 20 U.S. markets. The deal also gives T-Mobile a 3G roaming agreement with AT&T.
The upgrades put even more pressure on Sprint (NYSE:S) to become more competitive. Now, Sprint could look to restart merger talks with T-Mobile, though pulling it off would be expensive for Sprint since the two carriers operate on different networks.
Meanwhile, T-Mobile looks more attractive to any suitor, largely because the spectrum expansion will give T-Mobile a better chance to lure customers in some major markets with a new generation of smart-phones, more affordable plans and free services.
Earlier this month, T-Mobile introduced Bobsled, a group-messaging application that lets users make free calls to Facebook friends from any landline or mobile phone — including Apple‘s (NASDAQ:AAPL) iPhone — in the U.S., Canada or Puerto Rico. T-Mobile says it also expects Windows-platform-based phones to play an important role in its 2012 portfolio, beginning with the Nokia (NYSE:NOK) Lumia 710, which retails for $49 after a $50 rebate and qualifying two-year service agreement. While adoption of the Windows Phone operating system is far from widespread, Nokia’s sale of some 1 million smartphones running Windows Phone by the end of 2011 was better than analysts had expected.
That said, T-Mobile’s competitive woes are far from over. Not only does it remain the only major U.S. carrier without the iPhone, its coverage is still spotty in many areas of the country. No doubt, T-Mobile will continue to be a tough sell to customers who want the latest and greatest in cellular and broadband service. But after AT&T’s failed bid, at least more people will be listening.
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