The Justice Department is looking to put the kibosh on. So what does this mean for T-Mobile, the smallest and weakest of the four national wireless carriers?
The future of T-Mobile is the big unanswered question after the U.S. Department of Justice.
It is clear that that the Justice Department wants T-Mobile to remain an independent competitor in the market. In its lawsuit to block the merger the Justice Department called T-Mobile a "disruptive" force. It cited the company's many "firsts" in the industry, including the first Google Android smartphone. It also highlighted the company's aggressive pricing.
But what the agency failed to recognize in its analysis of the deal is that T-Mobile has two big problems that will make it almost impossible to remain an independent competitor: It lacks a 4G strategy and it has no spectrum to develop one.
There are already signs that T-Mobile may not be able to survive on its own. While Verizon Wireless and AT&T, the two largest competitors in the market, rack up new subscribers every quarter, Sprint and T-Mobile, No. 3 and No. 4 in the market,.
The 4G question
As the wireless market quickly moves to one that is centered on data, most of the wireless carriers to deal with the onslaught of usage from consumers. And the FCC has said it has made freeing up more spectrum a priority.
This shortage of wireless spectrum is what prompted AT&T to bid for T-Mobile in the first place. AT&T has been struggling to keep up with network demand in densely populated areas. And T-Mobile's spectrum and cell phone towers offered AT&T a perfect opportunity to add more capacity to its network without waiting for the government to free up more spectrum for auction.
In contrast to AT&T, T-Mobile is nowhere near exhausting its current spectrum with its existing services. Its network has plenty of capacity to serve its shrinking subscribership. Instead, the problem T-Mobile faces is that it needs additional bands of spectrum to migrate its customer base to the next generation of technology, 4G LTE. The Advanced Wireless Spectrum or AWS spectrum that T-Mobile bought in 2006 was used to build its 3G wireless network. If T-Mobile wants to build a 4G network, it will need additional spectrum to do it. And even though the government is talking about re-auctioning spectrum from TV broadcasters, it could be years before those auctions take place.
Executives at T-Mobile have tried to downplay the company's spectrum issues and lack of 4G strategy. In fact, a year ago, it ignited a marketing war by branding its advanced HSPA+ 3G network as 4G.
But HSPA+ will not be enough to satisfy demand in the future. It may offer similar speeds to certain 4G deployments today, but it is still an advanced 3G technology that doesn't offer the spectral efficiencies of next generation technologies, such as LTE or WiMax.
In short, without a strategy to move to the next generation of 4G, T-Mobile will not be able to compete in the future as consumers adopt new data-centric devices that will require increasingly more capacity on the network.
This dilemma leaves Deutsche Telekom with two choices: sell T-Mobile's spectrum and cell towers or partner with someone who needs those resources.
Deutsche Telekom couldn't have asked for a better exit strategy for its T-Mobile investment than AT&T. At $39 billion, it was an incredible deal for investors. And if the Justice Department is successful in blocking the merger, it's unlikely that the carrier will find a similarly sweet deal to replace it. For one, it's unclear who would be willing to buy T-Mobile. What's more even with the generous break-up terms, which are valued between $3 billion and $6 billion and includes both cash and spectrum, the fact that AT&T plans to fight the Justice Department's decision in court means that T-Mobile likely won't get its money or spectrum for some time.
Sprint Nextel, which had been in, could be a good fit for T-Mobile from a competitive standpoint, since they are the two smallest companies. And even though their networks use different technologies, the two are likely to choose the same 4G technology for future deployments. Still, Sprint may no longer be considered contender. In the Justice Department's rejection of the deal between AT&T and T-Mobile, it argued vociferously that T-Mobile needs to remain an independent company, which pretty much rules out a bid by No. 3 Sprint.
"[T-Mobile USA is important as an] independent, low priced rival...in particular...places important competitive pressure on its three larger rivals, particularly in terms of pricing...Unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation and poorer quality services due to reduced incentives to invest than would exist absent the merger."
Another potential suitor for T-Mobile that may pass muster with regulators is Dish Network. The satellite TV provider has already spent $3 billion acquiring wireless broadband spectrum. The company has been vague about its plans for the spectrum. But the company has recently asked the FCC to give it permission to combine its spectrum satellite spectrum with terrestrial wireless spectrum, which is an indication that it's.
With T-Mobile, Dish could have a nationwide wireless network at its finger tips. And it could combine its spectrum with T-Mobile's to create a 4G strategy.
If a sale is not in the cards of T-Mobile, its other option is to strike partnerships with other wireless providers. Clearwire, which is majority owned by Sprint, may be a good candidate. The companies . Adding T-Mobile to its list of partners could help Clearwire solve its funding problem. Clearwire, which has been building a nationwide 4G network using WiMax, has already announced that it plans to overlay LTE on top of its existing network. This could be appealing to T-Mobile, which could use the Clearwire network and spectrum to fill out its 4G strategy.
LightSquared, which has plans to build a nationwide 4G network using LTE, is another potential partner for T-Mobile. The company, which is still awaiting final approval to build its network from the FCC, plans to wholesale its LTE capacity to other wireless operators, retailers and anyone else interested in offering LTE service. LightSqared. And it has signed up MetroPCS as a partner.
In addition to the LTE carriers, cable operators may also be interested in partnering with T-Mobile. Several of these operators, including Comcast, Time Warner and Cox Communications own spectrum of their own, which they could use in combination with T-Mobile's network.
Whether it decides to put T-Mobile up for sale or it decides to form partnerships with other network providers, Deutsche Telekom will have to find some way to combine T-Mobile's resources with those of another carrier. As one telecom expert put it: "It's not a matter of if, but when."