AT&T and T-Mobile

The US Justice Dept. has sued to stop the proposed merger of AT&T and T-Mobile. Frankly this was expected as the current administration has made it clear they do not like mergers, especially mergers they do not consider politically advantageous. The last part of that is the most perplexing to me, but more about that later.

The merger would have created the largest cell network in the country and helped AT&T improve it's 4G network. The merger still might happen, but the chances are slim now. The winners here are few.  Sprint is considered the winner, but Sprint is in trouble no matter the merger or not. As the wireless carrier with the most troubled financial situation Sprint might get a longer lease on life, but frankly they need a merger and somewhere along the way that has almost surely got to happen. T-Mobile, owned by the German telephone company, wanted out of the US market as they see this market as saturated and no growth. They are correct in that assessment. T-Mobile being the 4th largest carrier had only one way to go and that is down. The German company that owns T-Mobile has no intention on spending more capital on the carrier so they will be considered a long term loser here, despite what the US Justice Dept. wants to think. Verizon, despite acting concerned about the merger, was considered a winner if the merger went through because the competition would be less and they could begin making some actual profits on their huge wireless investment here. So consider them a loser too. AT&T also is a loser since they saw T-Mobile as a quick fix to their network and the lessened competition as well.

So in all no one really won here long term. The largest legacy carrier Centurylink was never mentioned in this scenario publicly, but most people considered that if T-Mobile was merged, then Sprint would be forced to merge with someone and that someone would be Centurylink.  That was a plus for Centurylink, so they might be considered a loser here too. All these carrier have spent billions on the last decade to upgrade and improve their networks and are ready for a big payoff for the investment and for now that will not happen. There is also the fact that with the no growth market that the US market has become both AT&T and Verizon will now become more of a utility than growth companies and you can expect the market PE to soon reflect that fact. Verizon might have the most to lose there with the higher PE currently. A utility type company will be one that is heavy with regulation and lots of debt, a decent and slow growing dividend. A growth company would see captial gains in stock prices too, so check that off as likely to no go now for both companies.

US Justice has said they see this merger as non-competitive and that very well might be so, but they have done consumers and as well as Sprint and T-Mobile no favors here. With no merger technology improvements, like those in Europe and Asia, will be slow coming to the US market and Sprint and T-Mobile will continue to lose customers with a very uncertain future.  I am also perplexed by the decision since the unions wanted this merger as they saw significant increases in jobs and union dues from this merger. The 5000 jobs AT&T mentioned go away too, most of that coming from Europe. With unions a huge supplier of cash and manpower for the coming election Obama has told them he believes they are in his pocket already.  (Note there could be a similar union screwing decision coming soon on the Keystone Pipeline.) 

As an investor this decision means if you are looking at AT&T or Verizon as a utility shareholder you will be fine. If as a growth stock with capital gains you better look elsewhere. If you own Sprint you better take your losses and go elsewhere. I still consider Centurylink to be the most promising long term buy here.       

I currently own either long or options on CTL. T is on my watch list for inclusion.