In the latest chapter of the telecom merger saga between AT&T (T) and Deutsche Telecom's T-Mobile (OTCQX:DTEGY), a host of giant tech companies and venture capital firms sent letters to the FCC. From its website and public relations mouthpieces, Microsoft (MSFT) appears to have spear-headed the effort and enlisted the likes of Avaya, Brocade (BRCD), Blackberry-maker Research in Motion (RIMM), software giant Oracle (ORCL), CDMA technology juggernaut QUALCOMM (QCOM), Facebook, and even search engine competitor Yahoo! (YHOO).
The thrust of the argument is that the national network needs bandwidth for all of the new applications and services coming to wireless consumers' smartphones. AT&T is relatively new to the 4G playing field and can tap substantial bandwidth through the T-Mobile network to support the mushrooming number of applications. In this way, wireless consumers will actually be able to use the services available to them. Additionally, market penetration will increase and allow more applications to reach consumers on AT&T's giant network.
While Verizon (VZ) has been relatively mum on the merger lately, number three carrier by size, Sprint-Nextel (S) has enlisted consumer advocate organizations to lay out its claim that the tie-up between T-Mobile and Verizon would create a wireless duopoly and, as a result, hamper innovation. The tech community rebuts that point, too, by pointing to upstart virtual network providers Leap Wireless (LEAP) and Metro PCS (PCS) as significant competitors that will drive innovation in the handset and application markets.
The real question is, where is Apple (AAPL) and Google (GOOG)? These two operators make the iPhone and Android smartphones, respectively, with 25% and 36.4% market share at the end of April, according to market reports. The operating systems which run these devices have an even more interesting breakdown. The Android OS holds a hefty 50% of the mobile operating system market. Apple's iOS clocks in at 25%.
With all that bandwidth at stake in this merger, the biggest impact will be felt by Apple iPhone and Google Android smartphone and OS consumers. From a valuation standpoint, we see strong sales growth tailwinds for both Apple and Google if the tie-up happens and the loosening constrained bandwidth allows service to these smartphones to flourish, as Microsoft and its comrades prophesize.
Given where RIMM and MSFT are positioned, we anticipate that Apple and Google, too, would agree that an AT&T - T-Mobile tie-up would benefit them, but it is possible that these operators don't want to get their hands dirty in this just yet.