AT&T's Real Agenda for T-Mobile Becomes Public

Last Updated Aug 15, 2011 3:52 PM EDT

AT&T (T) has been running a heavy PR campaign to push for its acquisition of T-Mobile. But a letter accidentally and briefly posted by one of AT&T's law firms has completely undercut AT&T's main argument for the deal by revealing exactly what you would have expected: AT&T really wants T-Mobile to eliminate competition.

AT&T has repeatedly claimed that the merger is necessary to expand 4G services. That, of course, is just a smokescreen. AT&T has been using organizations to simulate grass-roots support for the merger, with the common theme that the deal would bring 4G services to 97 percent of the country.

The letter, which DSLReports.org found but didn't post, completely undercut AT&T's argument because the carrier's cost of building out a 4G network is only a fraction of the cost to acquire T-Mobile:
For the first time the letter pegs the cost of bringing AT&T's LTE coverage from 80% to 97% at $3.8 billion -- quite a cost difference from the $39 billion price tag on the T-Mobile deal. The push for 97% coverage apparently came from AT&T marketing, who was well aware that leaving LTE investment at 80% would leave them at a competitive disadvantage to Verizon. Marketing likely didn't want a repeat of the Luke Wilson map fiasco of a few years back, when Verizon made AT&T look foolish for poor 3G coverage.
In the quarter that ended June 30, AT&T had $3.8 billion in cash and equivalents in hand. A $39 billion acquisition does seem just a tad more expensive than that, especially with all the banking and legal fees that get tacked on.

Meanwhile, back at the ranch
Granted, buying a company isn't necessarily sunk money. AT&T would get revenue over an extended period of time. But simply building out a network would still be cheaper and faster. (And just think of the studies that have said few acquisitions actually provide the value they promise.)

Furthermore, it's not clear that T-Mobile would be helpful in the areas that need expansion:
While the $39 billion price certainly delivers AT&T customers, equipment, employees, and spectrum, most of T-Mobile's network replicates AT&T's existing resources in major markets, and T-Mobile's network is significantly less robust in rural markets where AT&T would want to expand. While the deal provides AT&T with a shortcut to sluggish tower builds in a few select markets, by and large AT&T will be faced with terminating many redundant positions and decommissioning a lot of duplicative equipment. They'll also have to close a large number of retail operations and independent retailers.
So AT&T would still have to build out significantly, because it's not getting significant additional capacity. The notion that AT&T needs to buy T-Mobile to deliver more 4G is absurd.

This is about competition only. AT&T wants customers in its pocket who won't then go to Sprint (S) or Verizon (VZ). It wants to lock in as many people as possible while driving up the effective cost of mobile data by restricting consumer alternatives to its service.

AT&T is trying to kill off the story by declaring it old news and reiterating that opponents to the deal don't know what they're talking about and that the acquisition is necessary to "make this expanded LTE commitment" and that it would create jobs and cause investment. Of course, those created jobs will come after the layoffs, and the investment would happen anyway. More carrier nonsense.

Related:
  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

Comments