If you haven’t yet heard, the United States Justice Department filed suit to block the proposed merger between communications giant AT&T and T-Mobile. According to Federal sources, this merger would have given AT&T 133 million customers making it the largest cellular service company behind Verizon currently with $110 million. Small businesses, many of which opposed the merger from the beginning, see the decision as a positive in an industry that, according to many, is already a duopoly.
Here’s how it would work. AT&T would acquire T-mobile and create 5,000 new jobs according to AT&T. The benefit to AT&T isn’t just the added customers. Even more important than the customers, AT&T would gain the T-mobile infrastructure allowing it to much more quickly roll out its 4G network and solve its capacity problems, at least for the short term. T-Mobile, a company struggling to gain market share, would allow it’s parent company Deutsche Telekom to do what it has wanted to do for a while: get out of America and focus on the more profitable European market.
This seems like the perfect partnership but for who? It benefits these two companies but few others. The cellular space is dominated by AT&T and Verizon with companies like T-Mobile and Sprint a distant third and fourth. For those who are looking for economy service without the bells and whistles, there are third tier companies like MetroPCS and Cellular South. As AT&T and Verizon grow larger, these smaller businesses lose more market share.
There are also many other truly small businesses that serve the cellular industry. Those who construct cell towers don’t like the possible merger deal because that would likely lessen the amount of towers these companies will construct as networks are merged. Other small communication companies who sell cellular plans on behalf of these second and third tier companies find themselves squeezed out as the top two grow their customer base.
What’s the future of this story? The recent rejection by the Department of Justice is just the beginning. There will be a court hearing and then most likely some back and fourth negotiations to attempt to save the deal on especially on the part of AT&T. The probability of the deal being permanently rejected is not known by analysts. Many say that the headwinds facing this merger are quite strong and in this case, small businesses may get their wish. Whether or not that will change the long term prospects of these smaller communications companies isn’t known.