Photo: AT&T Webcast screenshot
Updated. AT&T just wrapped up a conference call to explain its $39 billion purchase of T-Mobile USA, announced yesterday.During the call, AT&T explained why the transaction would be good for both AT&T and T-Mobile customers, why it would be good for AT&T (and its shareholders), and why it would be good for America.
AT&T reiterated over and over that it has been here before, executing several mega-mergers over the last 15 years, and that experience leads them to think the merger will be approved and will be successful.
LIVE coverage follows. Paraphrased unless in direct quotes.
7:55 Waiting for call to begin. In the meantime, click here for the charts from this presentation.
8:04 Call begins. AT&T’s IR head begins the conference. Today’s meeting is provide background and perspective. First, AT&T CEO Randall Stephenson. Then AT&T’s general counsel, enterprise boss, wireless CEO Ralph de la Vega, and CFO Rick Lindner.
8:05 Standard disclaimer / safe harbor statements now.
8:05 AT&T CEO Randall Stephenson: Will walk you though the deal and why we think it’ll be approved. This deal is a special deal at a special time. Will improve network quality, will give more customers access to more services, will bring LTE across the U.S. Represents a major investment and commitment to advance America’s leadership in mobile broadband. Have invested more in the U.S. than any other company over the last several years.
8:08 When we combine network assets, get better density, better network quality. Spectrum holdings will play together too. Will be able to significantly expand LTE to 95% of U.S. coverage, something the companies wouldn’t be able to do on their own.
8:10 Mobile broadband has grown like crazy and will grow 5x to 10x with tablets and smartphones. (True.) Every time we increase speeds, usage has jumped.
8:12 So what’s the most important thing to making this work? Spectrum. Dense network assets. And investment. Deal helps advance FCC’s broadband goals. (Ahem!)
8:13 Wayne Watts, general counsel, is going to go over approval process. He’s worked on AT&T Wireless, Cingular, AT&T, and BellSouth deals.
8:14 We’re confident we’ll get a positive regulatory review. A lot of experience in this area. We know regulators will stick with the facts. We’ve studied the law and we’ve studied the facts. And we think this deal can and will be approved. FCC will look at it from public interest, DOJ from competition.
8:16 Both companies will have a spectrum shortage. By combining them, this will result in better coverage. AT&T will keep investing. And there are big potentials for synergy.
8:19 Now they’re showing a chart: As wireless carriers merged, wireless prices fell. Of course, correlation is not causation.
8:20 MetroPCS and Cricket/Leap are providing real competition. Many big cities have 5 or more carrier choices. So, why can we get this done? “The facts” show we can provide better service and do better for the country with the merger. Obviously we know we may have to make some divestitures. But we believe we can agree on something that’s good for both sides.
8:22 Now John Stankey, who runs AT&T’s business division, is up. Something about how phones are everywhere. Mobile broadband the critical technology for application providers, cloud service providers, etc. Tremendously exciting, a bit humbling.
8:31 While we’ve been away, he’s been discussing how the deal will be good for customers, etc. Pretty straightforward stuff and similar to what Randall was saying — integrating networks, spectrum, customer service, etc. No change in AT&T’s LTE rollout schedule.
Photo: AT&T Webcast screenshot
8:33 AT&T Mobility CEO Ralph de la Vega takes over, also touts his experience leading big deals. Reiterates all the same stuff about why it’s good for consumers, rollover minutes, etc. Why good for AT&T? Can increase data ARPU for T-Mobile subscribers. Selling more smartphones, entry level data plans, etc.8:37 De la Vega cites access to AT&T wifi hotspot network as one benefit for T-Mobile customers. (Including Starbucks, whose business AT&T stole from T-Mobile a few years ago!)
8:39 Churn reduction, margin improvement, sure. But most excited about all the 4G devices we’ll be serving over the years.
8:40 Rick Lindner, CFO, takes over. $39 billion deal, 64% cash, T-Mobile will get about 8% of our stock. AT&T assumes no debt. Breakup fee: T-Mobile gets $3 billion in cash plus spectrum if deal doesn’t go through. Anticipate closing in approximately 12 months. Further shifts AT&T’s revenue more toward wireless.
8:43 $7 billion in integration expense, $2 billion in capex. But those costs will be offset quickly by substantial synergy benefits, which reach a $3 billion run rate in year 3. Can retire redundant cell sites and move traffic internally. Cost opportunities in retail distribution, advertising, etc.
8:45 Results following close will include amortization, impacting EPS. Modest dilution to reported EPS primarily over the first 3 years.
8:47 This transaction shouldn’t affect dividend.
8:48 Now it’s time for Q&A.
8:49 What about share repurchasing? What will you do with T-Mobile brand? As committing to $25 billion in cash, won’t be executing any share repurchasing. Sure, will increase debt. Does not change overall focus in maintaining strong balance sheet. Share repurchase authorization will continue to be outstanding, will consider in the future. Ralph on brand: Great opportunity to do something very special with this combination. Taking LTE to 95% of the country will be able to deliver best value in data. Combined companies will have lower cost structure to provide lowest cost per megabyte. Great quality and great value.
8:50 What’s different in 2011? Anything you can do in the interim to get some of these benefits earlier? What changes in LTE capex? Push harder this year? Not doing anything different in anticipation of closure. LTE and capex, what you’ll actually see is probably about $7 billion increase. LTE rollout: No change. Still going to deploy number of markets this year. 80% complete level by 2013. Planning will begin immediately to cover next 15% of the country. Current LTE plan remains on schedule. (So, no, they’re not speeding it up.)
8:52 Were you able to vet the transaction with FCC or DOJ? No, we can’t do that ahead of time. Have given them a heads up call, but that’s all.
8:54 Government will be looking through the deal on a market-by-market basis. That’s where people make their buying decisions. 18 of the 20 largest markets have 5 or more competitors, via FCC study.
8:57 Why rolling out LTE on AWS spectrum and not 700? No change in expectations in using 700 spectrum. Hold good portfolio. This is a nice complement outside of the metros where we don’t have as much. Pair that with T-Mobile and good solid chunk around the country. Re: Qualcomm deal, still need that spectrum and will push through to close that transaction as well.
8:59 Trend rates are looking negative for T-Mobile. How do you get comfortable with that asset ending up being what you’re expecting? $10b spectrum savings? Other potential options you looked at? In terms of the T-Mobile asset, it’s a terrific asset. No secret that they recently made a leadership change. They laid out a very solid plan. Asset with great spectrum position, great cell site grid. Great value, good employee base. Core asset is really a good, solid asset regardless of short-term performance.
9:03 Verizon had to divest 15% of subs via Alltel deal. Our initial plan is to have no divestitures. We’ll see.
9:06 Great opportunity to do some partnering with Deutsche Telekom in Europe for business customers. And roaming deals, as we do with America Movil.
9:14 Some talk about how they studied the network in extreme detail and will know where to trim… and that’s it.
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