AT&T's Failed Acquisition of T-Mobile USA

AT&T's Failed Acquisition of T-Mobile USA
Case Code: ECON038
Case Length: 18 Pages
Period: 2011-2012
Pub Date: 2013
Teaching Note: Not Available
Price: Rs.500
Organization : AT&T, T-Mobile
Industry : Telecom
Countries : USA
Themes: Competition, Mergers & Acquisitions
AT&T's Failed Acquisition of T-Mobile USA
Abstract Case Intro 1 Excerpts

Abstract

This case discusses the failed merger between US-based telecommunications major, AT&T Inc. (AT&T), and T-Mobile USA Inc. (T-Mobile), a subsidiary of German telecom major, Deutsche Telekom AG (Deutsche Telekom). The US$ 39 billion merger was expected to create the largest wireless carrier in the US. With this merger, AT&T aimed to increase network quality and ensure larger savings for the company, while T-Mobile aimed to gain spectrum and network assets from AT&T to offer 4G Long Term Evolution (LTE) services to its customers in the US. The deal, announced in March 2011, attracted opposition from several quarters. The Department of Justice (DoJ) filed a suit to block the merger terming the deal as anti-competitive.

The deal also faced opposition from several consumer groups in the US, the Federal Communications Commission (FCC), and other major wireless carriers such as Sprint Nextel (Sprint) and Cellular South Inc., who feared that it would create a duopoly in the US wireless phone market dominated by AT&T and Verizon Wireless. Despite several attempts by AT&T and T-Mobile to carry on with the deal, the FCC announced that AT&T would have to withdraw the merger. Hence in December 2011, AT&T announced that it had called off its merger with T-Mobile and would pay T-Mobile a break fee of US$ 4 billion following its withdrawal from the deal. Analysts were keen to see what the ramifications of the failed deal were for AT&T, T-Mobile, and the industry as a whole. The case is meant for MBA students as part of the Managerial Economics curriculum. It can also be used in a Strategic Management course.

Issues

The case is structured to achieve the following teaching objectives:

  • Understand issues and concepts related to competition (under monopoly/duopoly, etc.) and why the M&A deal between AT&T and T-Mobile USA, was termed anti-competitive
  • Understand the competitive situation in the US wireless carriers industry
  • Understand the rationale of the proposed M&A deal
  • Critically analyze the reasons for unsuccessful mergers
  • Understand the issues and challenges faced by AT&T and T-Mobile after calling off the merger
  • Explore strategies that T-Mobile may adopt after this setback

Contents

Keywords

Competition; Duopoly; Oligopoly; Mergers & Acquisitions; Rationale; Synergies; Anti-competitive; Antitrust; Herfindahl–Hirschman Index; US wireless industry; Telecom sector; AT&T; T-Mobile

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