No worries for T-Mobile customers
— -- AT&T's proposed $39 billion acquisition of T-Mobile from Deutsche Telekom hit a major obstacle last week when Federal Communications Commission Chairman Julius Genachowski said he would oppose the merger and seek a hearing from an administrative law judge.
The move comes as the companies face a Justice Department lawsuit seeking to block the deal on antitrust concerns.
AT&T and Deutsche Telekom withdrew their merger application to the FCC. And AT&T said it set aside $4 billion in the fourth quarter to cover potential breakup fees required under the deal if the merger is not completed.
Federal regulators say combining the second- and fourth-largest U.S. wireless carriers would lead to higher prices for consumers and job losses for workers.
Here are key consumer issues to consider:
Q: If they want to continue to pursue the merger, why did they withdraw their FCC application?
A: By withdrawing the FCC application, they can focus on fighting the DOJ lawsuit and refile the application with FCC later. "If they were to lose one or the other, the deal would have been declared dead," says Roger Entner, a telecom and media analyst of Recon Analytics.
Q: Is the merger off?
A: Not yet. But AT&T's $4 billion charge is a clear indication that it's not optimistic. It's a legally required accounting move, and AT&T could reverse the charge later if the merger is approved. "AT&T has a lot of incentive — at least $4 billion — to try to resurrect the deal," says Andrew Lipman, a telecommunications lawyer at Bingham McCutchen.
If the deal is somehow approved, the merger wouldn't likely happen until 2013 at the earliest, Entner says. If the companies prevail in the DOJ lawsuit, they will refile with FCC, which will start another 180-day review.
Q: Will T-Mobile's service be affected by the legal limbo?
A: Not in the short term, analysts say. Lipman points out that T-Mobile has a legal obligation to operate as a viable, competitive entity and not change its operations in anticipation of the merger's outcome. "T-Mobile has an obligation to continue to operate the network in a traditional way, and to continue to grow it and cultivate it," he says.
If the deal falls through, about $3 billion of the breakup fee — and their nationwide roaming agreement and additional network spectrum — will go to T-Mobile, Lipman says. "T-Mobile will be wealthier and more substantial of a company than when this process started," he says.
Even if the merger is approved, old contracts will be grandfathered in and honored. In past mergers by wireless carriers, subscribers of the acquired company were usually left alone, Entner says.
Phillip Redman, an analyst at Gartner, agrees that T-Mobile customers have no cause for concern for now. But if T-Mobile struggles financially without a larger partner, it may look to increase prices. "They've been considered a value play," he says. "And they could be stunted in the future (without a deal)."
Q: Should I worry about signing up with T-Mobile given the uncertainties?
A: Customers should consider other factors, such as company reputation for service and network quality, in choosing their wireless plans before worrying about the merger implications, analysts say. "You'll sign a two-year contract. In two years, if everything goes well for AT&T, they will integrate (T-Mobile)," Entner says.
With regulators watching its operations closely, T-Mobile "can't play dead just to have the merger approved," he says.
Even though it's the smallest of the major wireless network operators in the U.S., T-Mobile still makes money, Lipman says. But Deutsche Telekom is determined to exit the U.S. market. Without the AT&T deal, Deutsche Telekom may try to spin off T-Mobile or sell it to another company.
To get any deal done, it may be forced to sell some assets, including customers, to other carriers, media companies or private-equity investors, Lipman says.
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