The ATT-T-Mobile Merger Rumors

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| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

The ATT-T-Mobile Merger Rumors

Originally I had heard that the break-up fee was $3B, which meant (to me) that this deal was going to go through. Then there were reports it was $6B, which means there is no stopping it. (And let's not forget that AT&T cooperates nicely with the NSA and other government groups, who will put pressure on to allow this merger to go through.)

The Congressional hearings last week, where Stephenson basically said that although AT&T has a lot of spectrum, they have mismanaged that spectrum. Nice. So the whole industry pays for your mistakes?

Anyway rumor today is that AT&T will offer up wireline divestiture as a merger condition. Sprint spun off Embarq which is now CenturyLink, which is rumored to be looking at buying Sprint. Alltel did that with Valor to Windstream. Then Alltel got acquired by VZW. VZ spun off wireline to Fairpoint - and we know how that turned out - and to Frontier, who is basically foregoing any of that FiOS stuff. Consumers end up in a storm with big waves and are told to shut your mouth or you will drown. It's consumers who keep taking the brunt of these Wall Street based transactions. It's all about short term stock price and revenue gains. But we never see the revenue gains because it is short term thinking and synergies never truly appear. How is it that the regulators don't get this yet??????

AT&T may gladly divest itself of the mess that is their wireline. Internally each region is treated differently and no one can see the whole pie. SBC may be called AT&T but it is SBC underneath the cloak and those 22 states are treated different than the BellSouth 9. I feel sorry for the buyer.

Speculation is that it will be Frontier. If so, the wholesale customers will not be happy. Neither will Enterprise and Fortune 5000 customers of AT&T. And think of all the revenue that AT&T will be giving up? Ever notice that VZW doesn't report separately? There's a reason for that.

Then let's talk about who would (or could) buy the wireline business. There are Frontier, Fairpoint, Windstream and CenturyLink. Fairpoint just came out of BK, so no.

Frontier Communications may have difficulty buying it. It's a $5B company with $8B in debt and a amrket cap of $8.8B. But the revenue is wireline, which means declining. The two problems I see are as follows: (1) the cost of debt is rising every quarter, so interest payments cost more, while revenue declines. Synergies and cost containment is all that is making the balance sheet pretty. (2) The pension plan liabilities. It is what sunk Embarq and will likely catch up with the rest of the wireline folks as well.

Windstream. Honestly, I have no idea. They just went B2B and Cloud, so would they want to leverage themselves with wireline? Maybe not.

CenturyLink. They need a cell play, but they also just bought Savvis and finished acquiring Qwest.

AT&T could just spin it off as a stand alone company like Embarq. It dumps all of thier liabilities into one cup.  And bankers would love the gravy from that transaction.  However, I don't see how that changes the fact that AT&T already has too much spectrum that it mismanaged and why it should get not just the spectrum from the T-Mobile acquisition but why it should be allowed to get the spectrum from the Qualcom acquisition.  Do you give someone more assets to mismanage?


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