Can Sprint Stop the T-Mobile Travesty?

It's no secret that Sprint Nextel (NYSE: S  ) CEO Dan Hesse dislikes the proposed merger between AT&T (NYSE: T  ) and T-Mobile USA. However, Hesse is going to extremes in his fight to derail the deal.

Besides lobbying for a continued separation of two of the top four wireless networks in the nation, Hesse has gone the extra mile -- a few times over:

  • Step 1: Hire high-octane law firm Skadden Arps to help him plead his case.
  • Step 2: Go on a whirlwind lobbying tour -- including an appearance before Congress.
  • Step 3: Whip up a 377-page dissent to file with the Federal Communications Commission.
  • Step 4: Get his own engineers to explain how AT&T's network could perform quite well without adding T-Mobile's radio spectrum.
  • Step 5 (and this is a biggie): Lean on as many as 18 state regulators to examine the deal, thereby slowing down or stopping progress altogether.

Sprint has also asked the FCC to combine its review of the AT&T-Mobile deal with Ma Bell's proposed purchase of a bunch of bandwidth blocks across the country, which would relieve Qualcomm (Nasdaq: QCOM  ) and Windstream (Nasdaq: WIN  ) of unused radio licenses.

It all adds up to a huge filibuster campaign with the implicit hope that a stalled deal might be a dead deal. In Sprint's view, a combination of T-Mobile and AT&T would reduce the competitive landscape to colossuses AT&T and Verizon (NYSE: VZ  ) slugging it out far above Sprint and a gaggle of regional providers, leaving little room for innovation and consumer choice.

I happen to agree that the proposed merger would be bad for consumers. In the end, Sprint would have to sell itself to Verizon or start rolling up smaller networks to create a semi-credible competitor to the leading duo, and it'd still be an unfair fight. "Sprint's message is not one to be ignored," said former antitrust counsel Chris Sprigman in an interview with Bloomberg. "This merger is very likely to harm competition."

That said, Hesse and I are fighting an uphill battle here. AT&T has a lot of skin in the game and is unlikely to just roll over and play dead -- the breakup fee for this $39 billion megadeal is a heart-stopping $6 billion, according to Reuters.

That would be terrible news for AT&T shareholders, obviously, but at the risk of sounding like a free-range liberal: That could be the best possible outcome for American consumers and the wireless marketplace as a whole. Distribute that many extra resources from one of the top players to number four, and you've rebalanced the whole landscape.

The outcome of Hesse's crusade will have enormous effects on any portfolio with telecom exposure. Our new My Watchlist feature will help you stay on top of the news as it happens -- just click here to get started:

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of Qualcomm. Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (7) | Recommend This Article (7)

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  • Report this Comment On June 29, 2011, at 5:30 PM, fantoozler wrote:

    It's not just Sprint ratcheting up the pressure. I read several conservative columnists and most recently Grover Norquist, of Americans for Tax Reform, came out with a column in support of the merger. Why should AfTR have an opinion on telecom mergers?

    The mighty Wurlitzers of the pro- and anti- merger factions are playing at full blast. This is big-money ball and it's the top of the first inning.

  • Report this Comment On June 29, 2011, at 5:56 PM, sotxbill wrote:

    It was ok for sprint to try to buy tmobile, for the last year but not at&t? Whats changed, Sprint wanted tmobile at give away prices. Seems that the tmobile owners feel differently. They feel that they deserve a better price and at&t was willing to step up. OK so now I have blown most of your arguement, lets go on.

    TMobile is owned by the germans and they want to find a buyer. AT&T is an american owned company and they want to buy it. (sprint cant afford it). So, in your fairplay mind, getting a fair offer for tmobile is somehow wrong. Ok, if not at&t, the next offer would be from the Mexican cartel of cell companies. Is that somehow better? Or did you really want verizon to buy it. How do you argue one and not the other.

    Lets not mention that both T and Tm are both gsm companies and the users would be able to keep handsets and migrate over easily. That economically the deal make more dollars and sense for both sides. No,, profitability is no longer a capitalist principle? What is best for America, American Telephone and Telegraph owning an american company or Mexico? Wait,, isnt 40 percent of verizon mobile owned by someone overseas?

    Funny that Dan Heese was all for his company buying tmoble. Funny that you also seem to have the same flaw about whats good for America.

  • Report this Comment On June 29, 2011, at 6:53 PM, Jim98122x wrote:

    All these arguments against T-Mobile seem to assume that if the merger with AT&T doesn't go through, T-Mobile will just go on as now. But they've been under-performing for years, the Germans don't have the ca$h to invest in upgrading TMo's network, and service is starting to slip. If T-Mobile crashes & burns, who does that help?

    This merger has been proposed precisely because DT doesn't want T-Mobile anymore. They need to be sold to someone, and Sprint can't afford them. SO-- what else is there?

  • Report this Comment On June 29, 2011, at 10:47 PM, conradsands wrote:

    Consumers are finally noticing that AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon (the 10th leading U.S. lobbyist) and AT&T (the 12th leading U.S. lobbyist) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to push the U.S. market into a wireless industry duopoly -- the American consumer.

    T-Mobile should sell their spectrum to the highest bidders if they don't think they can succeed in America. This deal shouldn't be allowed because of how much it would raise the HHI.

    Taking into account the whole U.S. market, a combination of Dallas-based AT&T and T-Mobile will raise the Herfindahl-Hirschman Index (HHI), an accepted measure of market concentration, to 3,216 from 2,848, according to a Bloomberg analysis. Any score above 2,500 can indicate a highly concentrated market, and an increase of more than 200 points is “likely to enhance market power,” according to federal guidelines.

    If this ridiculous deal goes through, Sprint will be the only low-priced post-paid national wireless carrier left in the United States. T-Mobile customers are already fleeing to Sprint because they know they won’t get low prices from AT&T or Verizon. But AT&T and Verizon are two of the top corporate lobbyists in the country, so I'm sure the Feds are happy to oblige anything they want to do to secure a stranglehold on the market at the expense of the consumer.

    - Pricing: Controlling approximately 80 percent of the market would give the Twin Bells significant, unchecked leverage to increase prices for consumers for voice and data.

    - Last Mile Access: Control of most of our nation’s vast wireline infrastructure and the critical “last mile” offers the duopolists the ability to raise competitors’ costs, reduce their network quality and quash competitive alternatives.

    - Choice: Next-generation smartphone and tablet manufacturers would be discouraged from partnering with any company other than AT&T or Verizon because of their massive scale, limiting choice to consumers and opportunity for manufacturers.

    - Innovation: Content and application developers would lack incentive to create content for companies other than the Twin Bells, diminishing innovation and harming developers as well as the capital markets that fund them.

  • Report this Comment On July 03, 2011, at 4:53 PM, altondrew wrote:

    Mr. Bylund makes an assertion about increasing consumer prices, but doesn't show how, why, or by how much prices may increase if at all. All of a sudden, we are to believe that there will be no more market entry, no challenges to AT&T and Verizon should this transaction close.

    If prices do go up, that's the signal that competitors will want to see before entering the market.

    Even if prices did not increase, there will be approximately 30 to 55 million potential new customers for Sprint and a number of regionals to swoop in and pick up.

    Either way, this is the type of market disruption the wireless markets need to see from time to time in order for new innovative products to be introduced.

    Alton Drew

    www.altondrew.com

  • Report this Comment On July 05, 2011, at 10:09 PM, stockpickseven wrote:

    att is union, Tm is very anti union for workers and the President is very much for unions. Tm will be union with this AND ATT will build out DSL in small towns at a loss to get deal throu. The union trumps all else in this merger and will go throu even though it is bad for all cell users. That will not matter as it will be a union company-see Boeing-

  • Report this Comment On July 06, 2011, at 2:21 PM, twingoose wrote:

    spoken like a true liberal - another effort to stifle competion under the guise of :FAIRNESS"

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