Does T-Mobile have a Contingency Plan?

by Matt Klassen on November 30, 2011

With the chances that the merger between AT&T and T-Mobile will be approved growing less likely each day, perhaps its time for T-Mobile to start thinking about the future.

Almost forgotten in the ongoing merger drama, T-Mobile stands as the country’s fourth largest wireless carrier, advertising itself as the more affordable alternative to the Big Two and the more reliable alternative to its much closer competitor, Sprint. The truth is though that T-Mobile is a company with issues, the foremost of which is the fact that its parent company Deutsche Telekom AG wants out of the American telecommunications market.

But if there’s one thing that might change the collective mind of Deutsche Telekom AG I would guess it would be money, and should this deal fall through T-Mobile would be the recipient of a large payout of spectrum and cash. While the influx of cash will certainly provide more options, does T-Mobile have any idea what to do with it; does it have a contingency plan?

By itself T-Mobile isn’t much to look at, a distant fourth in the American wireless market that has seen a steady exodus of its contract subscribers to its more established competitors. In an effort to compete in the market, T-Mobile has taken on the role as the affordable alternative, slashing its prices in an effort to attract more paying customers. “As a result,” CNET’s Roger Cheng explains, “it resembles more of large prepaid carrier than one of the traditional national players.”

That said, with the influx of cash and spectrum that T-Mobile would receive should its merger deal with AT&T be rejected, the company would have some options. First, it could maintain the status quo, perhaps putting some of the money towards network upgrades. The reality is that even several billion dollars isn’t enough to spur on the growth needed for T-Mobile to really compete in the wireless segment, so with the money T-Mobile could simply stay the course as the countries chief pre-paid wireless service.

The second option could be to simply spend the money on improving the company’s services and expanding its reach. With the $4 billion it is conceivable that T-Mobile could switch roles from the acquiree to the acquirer, perhaps scooping up a lesser light like MetroPCS or Leap Wireless.

Along this same line of thinking, it may not be a stretch to consider a merger between Sprint and T-Mobile. Although federal regulators would likely worry that such a merger between two lower cost wireless alternatives may drive prices upwards, historically regulators have looked favorably upon unions between smaller competitors.

One final option for Deutsche Telekom AG is to simply sell its T-Mobile American subsidiary to a different parent company, and there’s no shortage of interested parties, particularly from Asia. Of course US regulators have looked even less favorably upon such market intrusion from Asian companies, which in itself may open some doors to one of the previous options.

In the end, while a merger with AT&T remains the company’s primary focus, with that deal in limbo it certainly never hurts to have a contingency plan, especially one that involves spending a cool $4 billion.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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