AT&T won't buy T-Mobile after all as the $39 billion deal was scuttled over regulatory concerns. Now the real sport begins: Watching T-Mobile's fate unfold.
The scenarios go like this:
- T-Mobile will continue to be a fourth rate carrier that lacks Apple's iPhone. The faux 4G pitch will eventually wear thin for T-Mobile.
- T-Mobile will wither away over time without AT&T. It's possible that T-Mobile becomes a zombie carrier that can't be overly aggressive because it lacks the spectrum on its network.
- Financial engineering---joint ventures, a T-Mobile IPO and other changes---will be attempted so Deutsche Telekom can get it U.S. carrier off its books.
- Consumers are likely to see T-Mobile suffer from a lack of investment going forward.
In other words, the Federal Communications Commission and Department of Justice wanted a No. 4 wireless carrier in markets so bad that it was ready to risk potentially killing one to make a point.
Oppenheimer analyst Tim Horan said in a research note:
From an industry perspective, post deal-breakup this makes T-Mobile the biggest wildcard in the industry. In our view, Deutsche Telekom has the option of possibly spinning off T-Mobile USA, or it could work to create a joint venture/co-build arrangement with AT&T. We do not envision Deutsche Telekom continuing to make significant investments in T-Mobile USA, though.
Other analysts are more optimistic about T-Mobile, which does get wireless spectrum in 128 U.S. markets. William Blair analyst Jim Breen said:
We believe that T?Mobile will emerge refocused, without the overhang of a pending merger, and with improved network quality via the acquisition of the AT&T spectrum assets. T?Mobile has been aggressively asserting itself in both the postpaid and prepaid wireless segments and will likely continue its competitive push with additional spectrum.
Breen's view seems wildly optimistic to me, but T-Mobile could become a prepaid juggernaut. In any case, T-Mobile is the weak sister on the wireless block.
The most likely scenario for T-Mobile is that it becomes a zombie carrier. It won't be attractive for a buyout, can be spun off as stock market junk and lacks the assets to compete with Verizon, AT&T and even Sprint.
The following chart illustrates how T-Mobile is already a zombie carrier. The T-Mobile customer base is eroding and the quarters outlined below don't include the Apple iPhone 4S launch at every carrier not called T-Mobile.
Add it up and the T-Mobile metrics don't scream healthy wireless carrier. You can expect those subscriber trends to continue. T-Mobile is headed to zombie-ville.
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