AT&T still may come out ahead

AT&T sought to acquire T-Mobile

If AT&T’s plan to buy T-Mobile USA does come to the bitter end that many experts predict, the cost for AT&T will be billions of dollars in break-up fees, nine months of unproductive wrangling and the appearance of slipping behind its rivals.

But appearances can be deceiving.

With its massive resources — and just one muscular rival in Verizon — Atlanta-based AT&T Mobility may still emerge from the failure in a powerful position, some experts said. There is also the chance for one more twist in the T-Mobile tale — a joint venture that satisfies both strategic needs and anti-trust worries.

One thing the company cannot do is shrug off the defeat and do nothing, said Roger Entner, analyst with Boston-based Recon Analytics.

“AT&T has a lot of work ahead of it — they went for the faster, more implementable solution with T-Mobile and it got shut down by the government,” Entner said.

In March, the company announced a $39 billion plan to buy T-Mobile from Deutsche Telekom, aiming to add the spectrum that AT&T desperately needed to ensure that phone calls, texts and data are smoothly transmitted. But federal regulators heatedly objected.

At both the Justice Department and the FCC, the anti-trusters argued that by swallowing the fourth-largest carrier and becoming the biggest, AT&T would put too much market share in too few hands.

Last Tuesday, AT&T agreed to postpone the scheduled trial in which it was going to contest the Justice Department’s claims that the merger would be bad for customers. That action, many experts said, effectively signaled the company’s intent to give up, since it already had withdrawn its merger application at the FCC.

The merger may be about to breathe its last breath, but the reasons for it live on. AT&T wanted the deal because it is — like other carriers — worried about having enough spectrum.

“They can grow but not on the wireless data side,” said Jeff Kagan, an Atlanta telecom analyst.

Data is the prime growth area — for all carriers. But the increased use of smartphones and tablets means a surge of data through the airwaves — enough to start clogging the network.

Now, there is the possibility of a pact with T-Mobile that leaves that company independent but gives AT&T access to its spectrum — and despite the desire to hold all the reins, such a joint venture might be enough.

“I think it will be better for them — in the long-term — if they do a network sharing deal,” Kagan said.

“Going forward, if they decide to do a deal with T-Mobile that allows them to use T-Mobile’s spectrum — that gives them what they need,” he said. “Then they get what they needed from the deal without the hassle of having to stitch together two different companies that service two different customer groups.”

Also, such an arrangement would likely be easier to sell to federal regulators.

While AT&T has wrestled with this merger, its competitors have not been standing still. AT&T’s rivals have kept scrambling to find a competitive advantage — and more spectrum.

Verizon, for example, is purchasing wireless airwaves for $3.6 billion from a joint venture owned by Comcast, Time Warner Cable and Bright House Networks. On Friday, Verizon also agreed to buy spectrum from Atlanta-based Cox Communications for $315 million. Verizon has also reportedly been in talks to buy Netflix as part of plans to start its own online streaming service.

But smaller rivals, too, have jockeyed for position. For instance, DISH Network has said it wants to enter the wireless market — perhaps even partnering with T-Mobile if and when the AT&T bid evaporates.

If AT&T does end up without any type of deal with T-Mobile, it would have lost eight months of time.

And money. If the deal doesn’t go through, AT&T would have to pay T-Mobile a break-up fee that could run to $4 billion. While a big number, many analysts said AT&T could absorb the hit. But the company would still have to shop for spectrum and buy it piecemeal, analysts said.

“Spectrum is something they will selectively acquire here and there,” said Michael Hodel, an analyst with Morningstar.

Questioned about its strategic position coming off the T-Mobile deal, AT&T Mobility declined comment.

It may be that AT&T has not lost ground during the merger attempt, Hodel said.

“I just don’t think that’s the case,” Hodel said. “AT&T and Verizon still sit head and shoulders above the others.”

Recent moves by competitors do not undermine AT&T’s position, he said. The Dish plans, for example, should be discounted, he said. “The prospects for building a competitive wireless network from scratch — I don’t think they are very good.”

He said he was skeptical of other relatively small providers, as well.

Yet, even while its market power has expanded, AT&T’s image has continued to suffer with consumers. A survey by Consumer Reports for its January issue rated AT&T’s cell phone service against six competitors in standard service and against seven rivals in the prepaid business.

AT&T finished last in both. Verizon came in fourth in one, sixth in the other. The winners were Consumer Cellular — which uses the AT&T network — for standard and TracFone for prepaid.

AT&T also finished last in a similar survey by Consumer Reports in 2010.

Atlanta and Georgia have a large stake in how the competition plays out.

Nearly 22,000 workers in the state, which was once home to BellSouth and then its own wireless company, Cingular. When SBC bought AT&T, keeping the name, then swallowed BellSouth, it centered its wireless and consumer markets unit, as well as its international services, in Atlanta.

That unit now represents the largest source of AT&T’s revenue.

AT&T recently launched “4G LTE” network, a wireless service that lets customers who have the newer, high-speed phones to download and transmit data much faster.

And wireless, after all, is seen as the future.

So while corporate control comes from AT&T headquarters in Dallas, daily wireless operations are in Atlanta. And that split may have worked to the company’s benefit during its attempt to buy T-Mobile.

Often, a company can’t help but be distracted by a merger deal — until it is completed or abandoned. This time, that does not appear to have happened, analyst Entner said.

“From what I can tell, the Atlanta guys have never really been that close to the merger,” he said. “They’ve been keeping their eyes on the ball with the daily business — rather than being distracted.”