AT&T Faces Another FCC Hurdle in Bid for T-Mobile
Source: Flickr/Le Dieu
Ever since AT&T (NYSE:T) announced its plans to acquire T-Mobile for $39 billion in March this year, the problems haven’t stopped for the company. Sprint (NYSE:S) has vehemently opposed the acquisition in the past mentioning that this deal could put the rest of the telecom industry at the mercy of AT&T and Verizon (NYSE:VZ). The Federal Communications Commission (FCC) has not provided any indications that this deal will be approved any time soon. Then yesterday, the FCC informed AT&T that its proposed acquisitions of T-Mobile and Qualcomm’s (NASDAQ:QCOM) 700 MHz spectrum will be informally reviewed together in a “coordinated manner” rather than as separate transactions. [1] This is troubling news for AT&T and could be an obstacle in the company’s endeavor to acquire more spectrum.
Our $38.75 price estimate for AT&T stock is about 35% above market price.
From the FCC Perspective
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AT&T is already trying to convince FCC that its proposed acquisition of T-Mobile would not limit competition and disrupt innovation in the telecom market but rather improve its service in a bid to provide 4G LTE service to its customers. By reviewing the two acquisitions together, the FCC is indirectly asking AT&T to justify such a massive purchase of spectrum.
The Implications for AT&T
AT&T and Verizon are neck and neck in the race for the top spot in the mobile subscriber market with both covering about one-third of the market. In our earlier note titled The Race for 4G: AT&T Buys T-Mobile, we discussed that the real motivation behind AT&T’s acquisition of T-Mobile will be the additional spectrum that AT&T gets that will enable it to extend LTE to more customers than it had originally planned.
AT&T is desperate to acquire additional spectrum as it will help it expand capacity, improve service and give it a competitive edge over Verizon. Verizon, on the other hand, is already ahead of AT&T in the LTE deployment and is also looking to acquire additional spectrum (see Verizon Asking for Rare Spectrum Swap).
Hence any negative implications of this announcement could spoil AT&T plans big time.
See our complete analysis for AT&T stock here
Notes:- FCC to review AT&T’s Qualcomm, T-Mobile deals in ‘coordinated manner’, FierceWireless, August 9th, 2011 [↩]