Photo: AT&T Webcast screenshot
First, they touted their experience.
It’s true — AT&T has executed more mega-mergers over the past 10 years than any company we can think of, including the original AT&T Wireless-Cingular deal, SBC-AT&T, and AT&T-BellSouth.
AT&T believes its experience with regulatory review has given it a good picture of what’s realistic and what isn’t from an approval standpoint, and believes it can frame the deal in a way that won’t be rejected.
Obviously, it will probably have to make some concessions — maybe even some big ones. But it doesn’t think the deal will be blocked. So T-Mobile’s breakup fee — if the deal doesn’t go through — is $3 billion in cash, a chunk of wireless spectrum, and a bigger roaming deal. That’s pretty significant.
Second, AT&T execs laid out what the FCC and DOJ will be looking for, and how they see it.
Big picture, AT&T says the Feds are looking at “the facts” — hinting that they aren’t acting based on emotions or politics. Though, no doubt, there will be plenty of jockeying in the press and among lobbyists from those on both sides of the deal.
The FCC, according to AT&T, will be looking to see if the deal is in the public interest.
AT&T argues that it is, because…
- Both companies will have to deal with spectrum shortages very soon but the deal would alleviate that.
- It will help meet the FCC’s desired wireless broadband buildout: AT&T expects to cover 95% of the country with 4G LTE service, something the companies would not have done separately.
- AT&T will invest more in America via network buildout. (AT&T said it has invested more in the U.S. — i.e., spent more money — than any other company over the last few years. Anyone care to challenge that?)
The DOJ, according to AT&T, will be looking at competition.
AT&T argues that the market will still be competitive, because…
- Even though AT&T and T-Mobile would combine the no. 1 and no. 3 wireless providers, there are still a lot left. Verizon, Sprint, Metro PCS, Leap, US Cellular, Cellular South, and others offer similar pricing and devices.
- New players like MetroPCS and Leap are proving to be real competitors, passing some traditional carriers in some markets.
- 18 of the top 20 markets have at least 5 carriers.
The deal will be scrutinized on a market-by-market basis, so divestitures (if any) can be figured out that way. Verizon had to divest about 15% of Alltel’s customers when it bought the company, for example.
Now, look at this chart that AT&T brought out to support its case. It’s very self-serving, and a little misleading, but it’s a good snapshot of all the major M&A over the last 10 years.
This shows wireless spending falling “during period when carries combined.” The big idea is to convey that reduced costs mean that the carriers will pass those savings along to consumers, delivering better pricing and better value.
This is one of those “no, duh!” charts that we hope won’t do much to sway regulators. OF COURSE the price of technology dropped over time. Have you bought a hard drive lately? The fact that technology got cheaper should not surprise anyone. We’d love to see how this chart goes up against the price of PCs or hard drives over time, to see how wireless price levels are relative to overall technology pricing.
Further, there’s no way to see how much cheaper wireless service would have gotten if the mergers hadn’t happened, but if there was more competition in the market instead. Would Nextel service be even cheaper today if Sprint hadn’t bought it? We’ll never know. So this chart isn’t necessarily a good thing!
And lastly, the Y-axis on this chart is a little misleading. It looks like the US CPI index is crashing from around 73 to around 0. In reality, it’s only falling to about 60.
That said, we believe the deal will be approved.
AT&T may have to make some major concessions and divestitures, but it’s a very rare for a deal to be blocked outright. Especially because Verizon — which would theoretically be one of the companies complaining the loudest — may want to make another mega-deal of its own, such as possibly buying Sprint Nextel. If Verizon’s bankers haven’t already thoroughly analysed that deal yet, they’re probably starting right now, to see how strong they should fight the AT&T-T-Mobile deal.