AT&T (NYSE:T) announced Sunday that it was buying T-Mobile USA from Deutsche Telekom AG (OTCQX:DTEGY) for $39 billion ($25 to $29.2 billion in cash and the rest in stock) and DT taking an equity stake in AT&T (5-8% of T). The transaction value is 7.2x T-Mobile USA’s reported 2010 EBITDA (4.8x including estimated synergies) of $5.45 billion. Management estimates it can extract about $3B in annual synergies and expects the deal to close in 2012.
In case the transaction would not be allowed DT has negotiated:
- a break-up fee of $US3bn,
- the transfer of AWS (1.7GHz) spectrum, and
- a roaming deal. AT&T and T-Mobile have 86MHz and 55MHz of nationwide spectrum respectively.
What are the implications?
- Sprint and T-Mobile compete for the postpaid value segment. Thus, consolidation should improve competitive dynamics for Sprint (NYSE:S) in the near-term. Longer term, the entire industry could benefit from an improved industry structure.
- If the AT&T / T-Mobile deal is approved, Sprint is locked into the #3 position against a dominant AT&T and Verizon (NYSE:VZ) [in a less competitive industry.]
- This deal evidently puts pressure on the towers. AT&T will probably become a net reducer of cell sites in the next 5 years given the improvements in cell density and LTE coverage expansion. Currently AT&T has approximately 10,000 towers and 57,000 cell sites and T-Mobile USA has approximately 6,000 towers and 49,000 cell sites today, of which 31,000 are 3G. The AT&T/T-Mobile USA transaction and Sprint’s plan to shut down the iDEN network could create a 2-4% revenue headwind for the industry long term. For 2010 American Tower Corp. (NYSE:AMT) had about 8% total revenue exposure to T-Mobile USA, CCI 11%, and SBA ~12%.
- Spectrum (CLWR.O) will evidently become cheaper as one player disappears from the market. MetroPCS and Leap Wireless will have the opportunity fill that void.
- Leaves Clearwire with one less potential partner/client.
- Accenture seems to be the consulting company of choice to lead the technology integration.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.