In twist, blocking AT&T deal could hurt rivals

Driven by antitrust concerns, U.S. regulators are fighting hard to block AT&T's $39 billion deal to buy Deutsche Telekom's T-Mobile USA. But, in an ironic twist, smaller U.S. wireless rivals may suffer more if the deal is blocked than if it is approved.

T-Mobile USA would emerge as a stronger, scrappier competitor thanks in large part to the hefty breakup fee it is entitled under the AT&T deal. And on its own, it is likely to fight harder for the low end of the market that is currently the playing ground for the likes of Sprint Nextel Corp, MetroPCS Communications Inc and Leap Wireless International, analysts said.

T-Mobile USA will "emerge as a stronger, more formidable competitor once the uncertainty of the merger has elapsed and its network quality is enhanced via the acquisition of the AT&T spectrum assets," said Jim Breen, an analyst at William Blair.

The AT&T deal -- the largest transaction announced this year -- has run into serious obstacles both at the Department of Justice and at the Federal Communications Commission, which worry about the antitrust implications of a merger of the No. 2 and No. 4 U.S. wireless carriers.

AT&T has said it would withdraw its application to the FCC to focus on persuading the Justice Department. The company also said it would take a $4 billion charge to account for a breakup fee in case the takeover fails.

Under the terms of the merger agreement, a failed deal would entitle T-Mobile USA to $3 billion in cash plus spectrum and roaming agreements.

In a research note, Moody's said that could also lead to a network sharing deal between the two companies, reasoning that it "would make sense given the spectrum that AT&T will have to cede to T-Mobile and the 3G roaming agreement between the two."

That would make life especially hard for No. 3 U.S. carrier Sprint, which has been one of the most vocal opponents of the AT&T/T-Mobile deal, going so far as to file a lawsuit.

William Blair's Breen predicts that because Sprint and T-Mobile serve similar segments of the market, Sprint will have to try and match T-Mobile's aggressive pricing to win postpaid customers, thereby diluting its average revenue per user.

"In terms of recruiting new subscribers, Sprint will no longer have the luxury of being the only value postpaid carrier in the market," Breen said.

Smaller rivals such as MetroPCS and Leap Wireless may be affected even more because T-Mobile is eyeing similar customer segments.

A failure to close the AT&T deal will turn T-Mobile into an even more aggressive competitor for urban prepaid users from these rivals.

MetroPCS and Leap would also lose an opportunity to buy T-Mobile USA assets that AT&T would have had to divest to overcome antitrust objections from regulators.

There has been speculation that AT&T -- in a move to assuage the DoJ's concerns -- could bolster MetroPCS' position to ensure that there is a fourth national competitor in the market but MetroPCS has made it clear that it has no ambitions to become a national carrier.

Representatives for MetroPCS, Leap Wireless and Sprint were not immediately available for comment.

The one winner from the uncertainty over the deal is the largest U.S. wireless carrier, Verizon Communications, Moody's said. Verizon gets room to execute its strategy while competitors try to salvage the transaction, Moody's said.

AT&T proposes divestiture to salvage T-Mobile deal

AT&T Inc., with its T-Mobile USA takeover facing regulatory opposition, is preparing the biggest remedy proposal yet to the Justice Department to salvage the $39 billion deal, according to a person familiar with the plan.

The company is considering an offer to divest a significantly larger portion of assets than it had initially expected, said the person, who declined to be identified because the plan isn't public. Though the exact size of the divestiture hasn't been determined, it could be as much as 40 percent of T-Mobile USA's assets, the person said.
The divestiture is an attempt to address the concerns of the Justice Department, which sued to block the takeover on Aug. 31, saying the deal would "substantially lessen competition" in the wireless market. The acquisition was dealt another blow Tuesday, with the Federal Communications Commission signaling an attempt to block it.
"It's going to be problematic for AT&T to find a successful divestiture solution," said Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York. The pool of potential buyers isn't very big and those that might be interested probably wouldn't have a chance, Smithen said. "It's unlikely that the DOJ would allow a big competitor like Verizon to purchase the assets," Smithen said.
AT&T fell 0.5 percent to $27.41 at the close in New York. The stock has lost 6.7 percent this year. T-Mobile owner Deutsche Telekom AG added 1.6 percent to 8.83 euros in Frankfurt and has declined 8.6 percent this year.
Brad Burns, an AT&T spokesman, and Andreas Fuchs, a Deutsche Telekom spokesman, declined to comment.
The asset-sale proposal, which could come as early as the next Justice Department hearing on Wednesday, might be the only remaining option if the second-largest U.S. wireless operator wants to avoid a lengthy court battle in its bid to become the country's top mobile carrier. The purchase may vault it past Verizon Wireless, depending on the size of the divestitures.
On Thursday, AT&T and Deutsche Telekom asked to pull their deal applications to the FCC so the companies could better focus on the Justice Department lawsuit. AT&T also said it would take a one-time charge of $4 billion to cover the breakup fee it will need to pay to Deutsche Telekom if the deal fails.
One approach is to propose a remedy that would lessen the market impact of losing the fourth-largest wireless service provider. The second approach is to fight the court case, which is scheduled to begin Feb. 13.
According to a term in the agreement, AT&T would be able to pay less than the deal's original $39 billion value if regulators demand asset sales that surpass 20 percent of that figure, or about $7.8 billion, three people with direct knowledge of the situation said Sept. 7.
AT&T could walk away from the deal and pay Deutsche Telekom a breakup fee if the concessions requested top 40 percent of that value, the people said. If the deal doesn't happen, there's no way AT&T can avoid paying the breakup fee, the people said.

Google Music Splashes Down in Hollywood with Drake and Maroon 5

On the day that Google Music unveiled its cloud-based music service, T-Mobile hosted one of its infamous mega bashes to flex the new service with performances by Drake, Maroon 5, and Bustah Rhymes Wednesday night.

(At left, Miley Cyrus and boyfriend Liam Hemsworth enjoy the show.)

John Stamos (a repeat guest at these events), Audrina Patridge, Kevin Connolly (in a suit), Serena Williams, Zac Efron, and Nick Cannnon saw the second call of duty for Rhymes in one day, with the rapper having appeared at the launch event in L.A. earlier Wednesday.

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After “Maroon 5’s” set, two of the three nominees for this weekend’s American Music Awards “Favorite Band, Duo or Group” category -- Maroon’s James Valentine and Drew Brown of “One Republic” -- spent time chatting about the odds.

Both said they definitely did not want to lose to party rockers “LMFAO”.

(At right, Jerry Ferrara and Jamie-Lynn Sigler inside the party.)

While rumors of a major T-Mobile event had been circulating for the last week, the Google Music unveiling brought the marketing blueprint in to focus.

In addition to the obvious music component, T-Mobile activated several listening stations and their new analog to the “Can you hear me now?” guy, actual product manager/web personality “Des” to show off the new service in a pop up shop.

It marked a turn in allegiance for headliner Drake, who launched rival Blackberry’s Torch last August at a Miracle Mile party.

Bustah Rhymes kicked off the night with a set similar to the one he performed at Perez Hilton’s “One Night in Los Angeles” the night before the MTV VMA Awards back in August.

PMK*BNC, Grace Fernandez and Hollywood prom king Jeffrey Best (event producer) filled 2,000 guests in to the space on La Brea known as the studio for “Exit through the Gift Shop” artist Mr. Brainwash.

This was the second consecutive  unconventional space for T-Mobile, the last one taking over the old Robinson’s May parking garage next to the Beverly Hilton in April with a performance by “The Strokes” the week after Coachella.

Recent PMKBNC brand marketing executive Rick Faigin, now the head of marketing at Paradigm.  made a return visit as a guest.

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AT&T asks for support on T-Mobile

Returning recently from a six-month leave to battle cancer, AT&T's top executive in North Carolina is leading a "full-court press" to generate public support in this state for AT&T's $39 billion acquisition of competitor T-Mobile.

Cynthia Marshall vows the corporate merger, which would create a telecom giant with more than 130 million customers nationwide, would alleviate the nagging problem of dropped calls and sluggish traffic that has overwhelmed AT&T's wireless network.

In North Carolina, as in many other states, regulators have no say over the merger.

Still, Marshall said support from North Carolina lawmakers, advocacy groups and others carries much weight in persuading federal regulators to bless the merger as being in the public interest.

"The voice coming out of North Carolina is powerful," Marshall said Wednesday during a meeting with reporters at The (Raleigh) News & Observer. "It's very important. We want this to happen."

Return from treatment

She estimates she is spending up to 40 percent of her time focused on touting the benefits of the T-Mobile deal. It will be the seventh merger during her 30-year career in telecommunications.

The deal was announced in March, as Marshall was consumed by chemotherapy treatments and her fight against colon cancer. Even during that time, she worked from home to promote the deal's merits. Now in remission, she returned to work full time this month.

Disparate groups - including labor unions, the NAACP, Gov. Bev Perdue and even the N.C. Sweet Potato Commission - have written to urge the Federal Communications Commission at AT&T's urging to approve the controversial merger as the best way to boost wireless coverage and expand broadband service, especially in rural areas.

"We all have experienced dropped calls, slow speeds and all that," Marshall said. "This merger is pretty much going to make this a thing of the past."

The FCC and the Justice Department aren't expected to rule on the deal until next year.

Foes cite costs

Opponents, including Sprint Nextel and some consumer groups, are urging regulators to block the deal or to require tough restrictions. U.S. Sen. Herb Kohl, a Wisconsin Democrat, wrote in a letter to federal regulators this week that the deal should be blocked because it will lead to higher prices and fewer choices for consumers.

Marshall said that's not true and that the acquisition is crucial because it would give AT&T access to T-Mobile's underused wireless spectrum. That would ease the data crush on AT&T's network, which is clogged with video and other downloads from smartphones and tablets. And that would allow it to expand its high-speed wireless network into rural areas and to add services.

Ken Rehbehn, an analyst with the Yankee Group, said in the nation's biggest metro areas, AT&T would expand its spectrum capacity by about 40 percent. T-Mobile's network is not nearly as congested as AT&T's. The deal would bring much-needed, albeit temporary, relief to AT&T and its customers.

"The work to get all this support just shows how vital this acquisition is to AT&T," Rehbehn said. "If they fail in this effort, I don't see an obvious Plan B to remain competitive."

T-Mobile's presence in North Carolina was negligible until its 2007 acquisition of regional provider SunCom Wireless. Neither T-Mobile nor AT&T will disclose T-Mobile's customer numbers in this state. T-Mobile's customers are mostly clustered in the New Jersey-New York corridor as well as other urban centers.

Marshall expects the deal, which also has support from a large telecom labor union, won't result in widespread job cuts. AT&T employs about 7,500 people in North Carolina and would continue hiring as it invests billions to expand the reach of its broadband networks.

She didn't provide specific hiring projections.

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