AT&T’s Buyout of T-Mobile: The Right Time to Invest?

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Editor’s Note: This is a guest post by Alexis Bonari of College Scholarships

AT&T’s announcement earlier this week of their intention to buyout the struggling T-Mobile has raised a number of concerns for both businesses and consumers who are worried about what kind of an effect it will have on the cellular market. AT&T is touting that the buyout would bring 4G wireless speeds to 95% of the American population. Given AT&T’s reputation for dropped calls and slow connection speeds, consumers are rightfully skeptical about these claims.

At the heart of these claims is the need for greater bandwidth in order to fulfill these goals. A unique aspect of this purchase is that T-Mobile’s infrastructure is compatible with AT&T’s, so a buyout of the company would immediately increase AT&T’s available bandwidth by 20% from 0.86 to 1.02 MHz per million subscribers. This is what would increase 4G availability according to AT&T.

A major issue with this approach is that the FCC is currently looking to increase available bandwidths to wireless companies, and such a merger could tie that legislation up in red tape. Unique to the American telecommunications industry is that the entire infrastructure is owned and built by private companies, which inherently creates a conflict of interest between the government and the telecoms. The government would like as much infrastructure as is possible, and indeed President Obama presented a new initiative in this area last month.

Known as the Wireless Innovation and Infrastructure Initiative, the program seeks to free up an additional 500 MHz of bandwidth for wireless providers and has a goal to provide 98% 4G coverage to rural America. This $5 billion investment by the government would take a total of 10 years to implement. AT&T says that they can’t wait that long and they need the additional infrastructure and bandwidth now.

The problem is that they need FCC approval for the merger, and analysts are predicting that the FCC may require AT&T to divest 40% of their acquisition to Sprint. Certainly this would offset investment gains in AT&T stock, but the merger is still likely to make its way through the FCC in some form or another. Considering the federal government’s intention to invest in the telecoms, investing now may be a good choice.

There is some skepticism from industry on the amount that would need to be invested in order to reach the initiative’s stated goals. The initial $5 billion investment will not be enough, and an additional $10.7 billion in funding from the national public safety network is expected to be enough to get the job done. The federal government expects to make a total of $27.8 billion from the sale of bandwidth alone, and will use the profits to pay down the national deficit.

Given the federal government’s commitment to increase wireless services to the majority of the country, it is hard to imagine that any investment into the telecom industry would be a bad one. Of course, this wasn’t the case for the struggling T-Mobile, but their problems have been blamed on bad management of the company by their German parent, Deutsche Telekom. Given AT&T’s proven track record, heavy government investment, and the likely hood that the FCC will not completely block the merger investment into AT&T may prove to be a smart choice right now.

About the Author: Alexis Bonari is currently a resident blogger at College Scholarships, where recently she’s been researching writing your college application essay as well as scholarships by degree. Whenever this WAHM gets some free time she enjoys doing yoga, cooking with the freshest organic in-season fare, and practicing the art of coupon clipping.

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