AT&T Inc. (NYSE: T) has announced plans to buy T-Mobile USA from parent Deutsche Telekom (PINK: DTEGY) in a $39 billion deal, creating the largest cellphone company in the U.S. With nearly 130 million subscribers, the move (if approved by regulators) would put AT&T handily above rival Verizon (NYSE: VZ) and its 102 million customers.
For T-Mobile customers who thought they would never see an Apple Inc. (NASDAQ: AAPL) iPhone on their network, your day has come.
The red tape will take a full year to unwind according to estimates, but when it’s over the buyout means big things for all cellphone customers – not just T-Mobile fans who will get a shot at a wider array of smartphones through AT&T. Here are 5 ways the buyout changes the game in the mobile marketplace, not just for telecom stock investors but also for consumers:
Less Choice
The obvious loss is T-Mobile as a choice for cell phone customers. That brings the market down to a mere three providers in the U.S. But also important is the loss of T-Mobile “flavors,” including an unlimited data plan for your smartphone at just $30 a month. Verizon and AT&T have already announced plans to kill their unlimited plans, and the purchase of T-Mobile has effectively killed it one more place, too. Other pricing plans are sure to disappear – both from AT&T’s lineup as well as from T-Mobile’s current offerings.
Big Trouble for Sprint
Sprint (NYSE: S) had been in distant third place behind AT&T and Verizon with “only” 50 million customers. This puts the company even farther behind. What’s more, the buyout of T-Mobile by AT&T prevents a strategic move by Sprint to acquire the firm first. Not like it has the capital to do that even if it wanted to – Sprint hasn’t turned a quarterly profit since the summer of 2007, and is scraping together cash to upgrade its network to compete better. But doubling its customer pool to become #2 in the mobile market is a practical impossibility, and the loss of T-Mobile as an acquisition target means Sprint will now have to fight tooth and nail for every tiny piece of market share.
Possible Stress on AT&T Network
The combined AT&T and T-Mobile footprint would be about 43% of U.S. cellphones. You can bet, however, that AT&T isn’t planning on keeping every piece of T-Mobile USA infrastructure in place. While some upgrades are already in the works for AT&T and some of the purchased equipment will surely be used, a large portion of those 33.7 million subscribers may just be dumped into the existing network. For a company that has struggled with complaints about its network – especially for the data-hungry iPhone, which T-Moble customers may hunger for – this is a big potential hang-up. Pardon the pun.
Better Rural Broadband
On the plus side, AT&T has pledged to increase spending on the construction of a new ultrafast broadband network by $8 billion to cover rural areas. While the aforementioned worry that city centers and suburban areas may experience some bottlenecks or “slow spots” due to network traffic, the move to bring high speed data service to rural areas has been applauded by many customers – and is a good strategic move to bring flashy smartphones or wired tablet computers to a broader area of America. What’s more, the move from the bigger AT&T would prompt Verizon and Sprint to keep up if they wanted to compete for those customers.
Higher Prices for Everyone
The biggest question is whether AT&T, Verizon and Sprint will see the contraction in their space as an opportunity to raise prices on wireless service. After all, if the remaining three players all decide to boost rates at the same time … well, there’s not much we can do about it. Other than stop using our iPhones, of course, which isn’t practical. AT&T appears to be ready to go on the price hike front, already making the case that prices have fallen through a decade of mergers in the industry. That has public-interest groups worried that a rate increase is coming as soon as the deal gets approved.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
