AT&T (T) recently bid $39 billion for T-Mobile, a fellow national cell phone service provider. This bid, in my eyes, was made for very clear and simple reasons. Sure, AT&T wants to increase its customer base so as to make more money and become a larger corporation. But what it really needs is a better image.
When comparing AT&T to Verizon Wireless (VZ), the other major cell phone service provider, there is a clear winner: Verizon. This may be partly because where I live, most people appear to prefer Verizon's service, as they receive faster data and fewer dropped calls on it compared to AT&T. However, this may be a phenomenon that is not simply in my area, as The Atlantic points out that AT&T is one of the 15 most hated companies in America for these very reasons.
These flaws aren't entirely AT&T's fault; obviously it has a lot of cash on hand, considering the $39 billion bid, and it's using other cash to upgrade and expand its network. The problem is, it can take years to get approved to build new cell towers, and AT&T simply can't wait that long. That's why the fastest way for it to get more is to simply buy another company that has them, as noted by Mashable.com.
Beyond this, in AT&T's press release, it adds: “The combination will increase AT&T’s network density by approximately 30 percent in some of its most populated areas, while avoiding the need to construct additional cell towers.” This could help to solve AT&T's actual problem of not having enough infrastructure to handle all of its customers more quickly.
Once AT&T actually solves the underlying problems that people have with its network, it can finally begin to rebuild and improve its brand image so as to remain a powerful competitor in the wireless service arena. Without the T-Mobile acquisition, it may be a much longer path to restore public confidence in the company, as the network upgrades could take significantly longer.
And, since more and more people are getting iPhones (AAPL) and Android (GOOG) devices which require data plans, there will only continue to be more strain on the network going forward. That is why AT&T needs T-Mobile badly enough to give it $6 billion if the merger is not approved. This shows how badly the company knows it needs T-Mobile -- that it's willing to put so much at risk if the deal should fall through.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.