T-Mobile to Grow with AT&T Assets, But Who’s the Next Suitor?

Now back on its own, T-Mobile stands to grow its coverage area with some assets from the breakup penalty that AT&T will pay for its failed buyout attempt. But most of the consolation prize will stay with T-Mobile’s German parent company, which has been looking for a way to exit the U.S. market, rather than go into supercharging T-Mobile’s market position.

In a statement, Deutsche Telekom outlines how it plans to use the breakup fee and associated assets that AT&T had to forfeit for scrapping the proposed $39 billion merger with T-Mobile. AT&T has valued the breakup fee at $4 billion, which includes $3 billion in cash and $1 billion in spectrum assets. As Deutsche Telekom noted, it’s “one of the highest payments ever agreed [to] between two companies for the termination of a purchase agreement.”

Deutsche appears to be keeping the cash. At the tail end of its statement, the company says the $3 billion payment “directly reduces Deutsche Telekom’s net debt.”

But Bellevue, WA-based T-Mobile will reap some rewards: It gets “a large package” of wireless spectrum in 128 markets, including 12 of the top 20 U.S. cities. T-Mobile also is getting a roaming deal with AT&T that lasts more than seven years, which improves coverage for existing customers and increases the company’s footprint by about 50 million potential customers, giving it a network that could cover some 280 million people.

That’s a significant boost to T-Mobile’s previous plans, which called for the company to cover 290 million people with its 3G and 4G networks by 2013.

Tom Huseby

What should be T-Mobile’s next move? Seattle investor and wireless industry veteran Tom Huseby says it’s back to building the business until a suitor can be found.

“I’d be surprised if T-Mobile is actually working on a Plan B very actively. I think the Plan B by default is to resume the activities that allowed them to compete in the first place,” Huseby says. “They have to go back to what they were doing before—they had a series of initiatives that I thought were doing a good job of positioning them relative to their larger competitors.”

After that, Deutsche Telekom can maybe move into the next phase of looking for a new owner, or some other creative way of unloading the T-Mobile business. In its statement today, Deutsche Telekom says its current fiscal year financial forecast remains unchanged, and says it “will go back to reporting T-Mobile USA as continuing operations in [the] future.”

The two remaining possible acquirers in the wireless industry are definitely not slam-dunks for Deutsche Telekom, either. Market leader Verizon clearly couldn’t make a buy for the same regulatory and anticompetitive reasons that No. 2 carrier AT&T got shot down. Third-place Sprint was previously rumored to be interested in a buyout of No. 4 T-Mobile, but the two companies have built their networks around incompatible technologies.

Then there are an entire group of suitors who aren’t really in mobile now, but want to be. That prominently includes the TV providers, who have been heading toward more direct competition with the mobile network providers for some time.

“But I think they [T-Mobile] should view that as a longer timeframe, personally,” Huseby says. “They should make sure they can get back to turning the crank on their business first,” before seriously considering another buyout possibility.

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