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Unblocking the T Mobile Deal value of $29 bln

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While AT&T continues to soldier on trying to get anti trust approvals for its T mobile deal, news commentary on the deal makes it look like the culprit in this case despite the good nationalist intentions has been the much tom tommed $29 bln in value from cost cutting due to the deal.

In fact AT&T has a very good chance of courts overturning the Anti Trust verdict and as it claims (Dealbook/NYT) there are more than 5 local competitors in each area for mobile services including prepaid players. Of course once the deal is done, it would be owning 80% of the market with Verizon and Sprint that being the spanner in the works unless Courts treat the telecom markets in the sane vein as aviation in which Boeing’s acquisition of McD much left only an Airbus vs Boeing industry picture treated as competitive even now.

A greater surprise is how AT&T is not part of any of the patent wars going on in courts right now as Amazon tries to claw back on e readers from Apple and Samsung fights on with apple on iPad abnd iPhone technologies. That AT&T is in the services market only and is growing there without trying to be the conglomerate it was two decades earlier probably won’t count in the current scheme of things. on the optimistic side the Deutsche Borse deal got through with regulators giving the nod. Ont he flip side again, that can be trumped up to mean that AT&T is not doing any national service by buying out T Mobile from the US market though in the politically charged large deal circumstances  alonger winded court action is unlikely to ignore such flippantly political undertones.

However, these are much ancilliary to the deal negotiations. What AT&T has to rely on id the new investments in T Mobile infrastructure it will be making and the cost cutting possible from the deal and convince the regulators, the courts and us how that will really go down. therwise it needs to pony up the nearly $ 7 bln due to T Mobile for the break up of the deal including the value of the precious spectrum for wireless that will go t o T-Mobile. I also thought T Mobile’s share of the US telecom market was hardly a material quantity to matter to regulators, but i was wrong.

The $29 billion cost savings is the juicy bit but there have been short cuts available with one of the local prepaid providers submitting to the Justice Department that it will agre to the deal if it also gets some spectrum from aT&T and probably a chance to sell iPhones rather than AT&T continuing its exclusive arrangement The twist in the tale here is that aT&T is claiming that its new subscribers would mean wider access for its new generation LTE spectrum.

The high break up cost does ensure AT&T remains at hand tll the due date in September 2012 to get approvals notwithstanding Justice Department concerns and consequent demands the dealmakers anticipated in sharing spectrum and selling off circles/ businesses from the combined entity.

In fact the Deal charter claimed cost savings of $40 bln and the latest suit against the early verdict claims that T Mobile ‘s non investment in technology can be compensated by the deal giving its subscribers a fresh lease of life but the overturning of the verdict is going to need people to get convinced of the cost savings in the most likely instance. the combined entity will have twice the annual revenues of an Amazon.com and 130 million subscribers of which probably 20 million carry iPhones already making it non exclusive however is unlikely to add any competitiveness more than the direct Verizon vs AT&T battle currently on where both providers have services for wireless subscribers

AT issue also is that the competition to the deal claims that the national goal of 98% AT&T deployment is not really contingent on this deal going through and may set the tone against AT&T much like the FCC verdict despite AT&T’s claims of adding 46 million rural subscribres t the national 4G LTE footprint in 5 years. However a closer look reveals AT&T just providing a competitive alternative to Verizon’s plans for reaching 285 mln thru its LTE network and it can hardly be about “incremental coverage”

As Dealbook also mentions towards the end of this piece, the deal covenants in this public private deal are extensive and provide both AT&T and T mobile a lot of flexible options to cover the deal financials inclusing future gains from the cost savings achieved for the out going provider. Whether they will ever be fully understood by the courts before making its summary go/no go verdict on the appeal is going to be much a battle to watch on its own.

 

 

 

 

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This entry was posted on September 7, 2011 by in Dealbook, Mergers etc, Retail Lifestyle, US and tagged , , , , , , .

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