Maneuvers by American cell phone companies to acquire one another are threatening to erupt into all-out war. Not only am I wondering which will survive, but also whether the survivors will be destroyed by the prey they're rushing to eat up. The war began in 2011, when AT&T made a bid to acquire T-Mobile U.S.A., the American subsidiary of Deutsche Telekom, which had been looking to sell it for some time. Considering the well-known antitrust concerns, AT&T’s move was quite brave.
It was a terrible move for AT&T. Regulators blocked the deal, and the provider walked away with a $6 billion loss: the $4 billion required to pay over the failed acquisition, combined with the estimated value of the broadband licenses it was required to grant T-Mobile.
With recent M&A news in the cell phone space again, we are heading in the direction where three big wireless companies will dominate the US market, and not many more. The big will continue to get bigger as they scoop up telecommunications companies with access to excess broadband spectrum.
I wonder whether the wireless industry will be in danger from its own deal-making frenzy, similar to what occurred during the dot-com bubble. When faced with an uncertain competitive landscape that changes as quick as this one has, executives spend billions because they believe they have no other choice. The cost to the company, shareholders, and consumers can be immense. Is excessive executive confidence and the need to be the biggest on the block clouding reason?
SoftBank’s chief, Masayoshi Son, told Jim Cramer on CNBC after the announcement of his company’s investment in Sprint: “I am a man, and every man wants to be No. 1, not No. 2 or No. 3.” The deal would make SoftBank only the third-largest global wireless carrier.
The rush to complete deals is an investment banker’s dream, but the hunt may lead these companies to not only overpay, but to acquire companies that are underperforming or otherwise don’t fit well with the acquirer's core business. Finding a way to sustain their profitability can be a major task in the future.
For consumers, there will probably be less choice as wireless carriers disappear. Does this mean improved service? I doubt it. The government, meanwhile, is likely to stand aside from smaller deals, instead arguing that AT&T and Verizon need a bigger third competitor. Albeit we have yet to see if that will hold indefinitely true, cell phone executives believe there is no choice but to race to acquire one another. In this war, it's all about making a deal. Consumer interests come after.