The AT&T Merger From Sprint's Perspective

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The AT&T (NYSE: T  ) and T-Mobile merger has been grabbing headlines for months now. The Department of Justice opposes it, and arguments have been raised regarding possible rate increases and fewer options. A healthy dose of the consternation has come from Sprint Nextel (NYSE: S  ) , which fears losing its market share -- and its business entirely -- if the deal goes through. What will happen to the third-biggest U.S. wireless operator if the merger happens?

Left out in the cold  
The $39 billion deal would make AT&T the largest U.S. wireless service company, adding 33.7 million subscribers to its 95.5 million-strong customer user base and helping it grab 43% market share. The current market leader, Verizon Communications (NYSE: VZ  ) , would move to second position in the U.S. telecom industry with a little more than 102 million subscribers.

Sprint has consistently reported losses for the past 15 quarters, with its bottom line suffering because of increasing operating expenses. In the second quarter, the wireless-service provider reported just a 3.5% revenue increase, and with only 49 million subscribers -- roughly 16% of the market -- Sprint could have a tough time maintaining even that level.

Reading the crystal ball
Sprint is the first mover in 4G and has a larger 4G device portfolio than any of its competitors. However, AT&T is set to launch its LTE network and release 20 4G devices this year, the first of which is the HTC Inspire 4G, which stands as one of AT&T's best, high-end Android devices. Sprint might lose its 4G leadership advantage in the event of a merger, which would allow AT&T to expand its 4G LTE wireless coverage to 97% of the American population.

Foolish bottom line
Despite being the third-largest telecom company, Sprint is not in a position to participate in the telecom war, and that's why it's feeling insecure. But even if the merger takes place, I think its market share would hold steady, and it wouldn't lose its third-place status, even as AT&T and Verizon swapped the top two spots. In fact, if the deal does go through, the picture may be even grimmer for the current market leader, Verizon, than for Sprint. Should Sprint sit back and chill? What say you, Fools?

Fool contributor Abantika Chatterjee owns no shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 04, 2011, at 6:35 PM, jhf678 wrote:

    With the new 7 time faster iPhone 4S for only $199, cheaper monthly bill with Sprint, unlimited data plan, soon everybody in America will carry an iPhone from Sprint.

  • Report this Comment On October 04, 2011, at 7:00 PM, jhf678 wrote:

    The guys at AP removes people comments. He must have been paid by AT&T or Verizon to do so.

  • Report this Comment On October 04, 2011, at 10:40 PM, conradsands wrote:

    Consumers are finally noticing that AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon and AT&T (both in the top 5 for corporate lobbying) 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.

    Taking into account the whole U.S. market, a combination of AT&T and T-Mobile would increase the Herfindahl-Hirschman Index (HHI), a widely accepted measure of market concentration, to 3,216 from 2,848, according to a Bloomberg analysis. Any score above 2,500 indicates a highly concentrated market, and any increase of more than 200 points clearly enhances 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 beware of how things could “mysteriously” turn in this case.

    “It’s only a slight overstatement to say that if they weren’t going to block this one, the Justice Department might as well just throw the antitrust guidelines out the window,” said Herbert Hovenkamp, professor of law at the University of Iowa, who is considered by many to be the dean of American antitrust law. “This merger clearly seems to violate them.”

  • Report this Comment On October 04, 2011, at 10:40 PM, conradsands wrote:

    AT&T’s Dirty Money at Work …

    Snippets from CNN story …

    AT&T lobbyists push for T-Mobile deal

    For years, AT&T has been one of the biggest political and lobbying forces in Washington, D.C. Last year, it spent $15.3 million and had 93 lobbyists on its roster, including six former lawmakers. Germany's Deutsche Telekom spent $3 million on lobbying for T-Mobile USA in 2010, armed with 41 lobbyists and one former lawmaker.

    Many lawmakers have a personal interest in seeing AT&T do well. AT&T ranked as the sixth most popular investment among members of the House and Senate in 2009, the most recent year for which such data is available, according to the Center for Responsive Politics.

    And AT&T is considered a heavy hitter during campaign election cycles. In 2010, donors with links to the company made nearly $4 million in campaign contributions to candidates running for federal office.

  • Report this Comment On October 05, 2011, at 1:42 PM, dbisc1 wrote:

    If AT&T is allowed to take T-mobile this is pure antitrust violation. Monopolism at its best, thanks to our government who has been doing this to the people for over 50 years. All because of lobbist money and favors. Our government has constantly over time repeated these acts eliminating competiton in this capitalistic country. All the people have received is poor service, higher prices, and no options. This is another department of government that needs to be gutted! Justice would be to allow Sprint this merger.

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