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Since a merger with T-Mobile is out of the picture, AT&T may go after prepaid carriers Leap or MetroPCS to quench its thirst for wireless spectrum. This possibility was raised by a JPMorgan analyst in a note to clients on Thursday. [1]
AT&T had to drop its bid for T-Mobile after it faced months of intense opposition from both regulators and competitors alike, all of whom were concerned about the anti-competitive impacts of the merger on smaller wireless players as well as customers. AT&T was desperately pursuing the deal in order to secure the additional spectrum it says it needs to compete with Verizon and Sprint, as well as to build out its 4G LTE network.
AT&T’s dire situation
In an earlier note, we discussed AT&T’s limited options in the aftermath of the failed merger attempt. We believe that it is going to be tough for a company the size of AT&T – along with Verizon , it controls almost 65% of the postpaid market – to go out and make another acquisition, particularly after this very public fiasco. And with Verizon snapping up swathes of unused spectrum from cable companies, available spectrum has become that much rarer and difficult to acquire. (see AT&T’s Spectrum Options Are Limited Without T-Mobile)
Leap and MetroPCS may not have the scale of spectrum that would fulfill AT&T’s long-term need, but given AT&T’s current situation it is probably better off trying to go for several smaller spectrum deals instead of a large, high-profile one.
Regulatory approval wouldn’t be an issue
The wireless market is intensely competitive, with the number of wireless subscriber connections (327.6 million) exceeding the total population (315.5 million) in the United States. [2] As an ever increasing number of smartphone users demand higher speeds and congestion-free networks, wireless carriers are hard-pressed for additional spectrum in order to meet these demands. However, there are no imminent government auctions of airwaves that could help mitigate this spectrum crunch.
Such a scenario usually calls for consolidation in the industry, as it would put the available airwaves to more efficient use and ultimately help customers. However, the FCC and DOJ have made it clear that large-scale consolidation will be difficult to pull off.
Acquiring a smaller player like Leap or MetroPCS would not pose the same anti-competitive concerns that the T-Mobile merger did, making it easier for the FCC to approve the deal. Therefore, we believe that going after Leap and/or MetroPCS would be a sensible move for AT&T, as it would provide a near term solution for its spectrum needs while avoiding regulatory headaches.
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Notes:
- Leap Wireless, MetroPCS May Be Takeover Targets for AT&T, JPMorgan Says, Bloomberg, December 20, 2011 [↩]
- CTIA Semi-Annual Survey Reveals Historical Wireless trend, October 11th, 2011 [↩]
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