On Sunday AT&T announced its intent to spend $39 billion in cash and stock to purchase T-Mobile USA, the #4 wireless operator in the US. The move, much like Cingular’s 2004 acquisition of AT&T Wireless, would vault the #2 provider over Verizon Wireless into a dominant leadership position. Our clients can read Forrester’s take from a product strategy perspective shortly; here’s a summary:
- For AT&T, this is all about scale. The acquisition, were it to pass regulatory muster (no slam dunk that), addresses a number of scale challenges for AT&T. Most importantly, it delivers the precious spectrum assets needed to deploy a robust, nationwide LTE network; AT&T says that network will, as a result, ultimately be available to 95% of Americans, 46.5 million more than currently planned. It also delivers a boatload of extant base stations, many fed by Ethernet or fiber backhaul, which will help AT&T bolster its service quality (iPhone owners please don’t hold your breath). And it delivers a skilled radio frequency team that will help the company plan and deploy its next-generation network.
- Those supplying products need also scale. This new customer base of nearly 130 million subscriptions (again, assuming regulatory approval and the unlikely case of no divestitures) represents a huge opportunity for product strategists at device makers, platform owners, and application providers. But meeting that opportunity will, for device makers, mean taking a haircut on margins in light of AT&T’s purchasing power. We think platform providers like Microsoft ought to consider the upside of an exclusive to tap into AT&T’s rich marketing budget — provided they can get a partner to bring a decent tablet to the market at the same time.
- AT&T’s competitors need to move with alacrity during the integration. Verizon will have a lead of up to a year with their LTE network, and they need to milk it for all it’s worth before AT&T wakes up from its post-digestion nap. That means LTE tablets, phone-tablet-hotspot bundles, and in-vehicle innovations. Sprint needs to kick its network modernization into high gear and make the switch to LTE as quickly as possible. And cable operators need to put up or shut up when it comes to mobility — if it matters, then speak with your wallets, if not to Clearwire then to LightSquared or to Alcatel-Lucent to make use of the AWS spectrum you bought in 2006.
If AT&T can get this through the regulators without having to divest too much, it’s a huge win for them, and the integration will go more smoothly than did Cingular and AWE. As with that acquisition, customers will benefit — eventually — with improved service quality, but they’ll likely pay for the benefit given the reduced level of competition.