Wednesday, May 9, 2012

Deutsche Telekom Has No Really Great Options for T-Mobile USA

Deutsche Telekom AG is discussing a merger of its T-Mobile USA business with MetroPCS Communications, Bloomberg reports. In an ideal world, that wouldn't be DT's first choice, which was exiting the U.S. market by selling all its assets to AT&T. A second option, despite its operational and technological difficulties, might have been a combination of some sort with Sprint.

That would have combined the number-three and number-four firms, in terms of market share, despite many obvious network issues, namely the legacy air interfaces. But both Sprint and T-Mobile USA were committed already to Long Term Evolution, which would effectively resolve the air interface problems with the legacy networks each company operates.

Nobody seems to think such a deal would be approved by the Justice Department, though. All that really leaves is a combination with a smaller, regional carrier that doesn't disturb the existing top of the market too much.

There are some strategy issues to be faced. T-Mobile USA is trying to position as a brand more businesses can buy, though it has been effectively positioned recently as a brand for consumer "hipsters."

Combining with a brand known for lower-cost consumer offers therefore would pose some issues in terms of customer segmentation.

Deutsche Telekom is considering a stock-swap transaction that would give the German company control over the combined entity.

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