John Paczkowski

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Analysts Hail AT&T Deal as a Win…For AT&T

Consumer groups are aghast at the idea of AT&T buying T-Mobile. Legislators are wary. But analysts who cover the carrier are overjoyed. The announcement of the acquisition was met with a fusillade of largely positive research notes this morning.

Bernstein Research analyst Craig Moffet calls the deal a “clear win” for AT&T, despite T-Mobile USA’s high price tag. “Even paying a premium to market for T-Mo, AT&T believes it can acquire the asset for free,” he writes. “The relative compatibility of the two companies suggests that very high synergies in this range are, in fact, plausible. The company can point to synergies in the areas of network, advertising and marketing, retail stores, support and SG&A, and spectrum.”

At Barclays, James Ratcliffe also describes the deal as a win, but worries about regulatory challenges. “While we don’t expect this deal to have an easy time getting approval in Washington, AT&T’s offer to expand its LTE coverage (feeding into administration goals of nationwide wireless broadband) and support from AT&T’s unions (T-Mobile is non-union), certainly help,” he says. “AT&T’s regulatory team is high-quality, and we don’t think the company would be going down this path (given $3BN breakup fee, especially), if they didn’t have high confidence of success.”

Simon Flannery at Morgan Stanley, too, sees the acquisition as a good move. “The AT&T/T-Mobile USA merger fits our thesis of logical combinations, with synergy opportunities and a common network technology,” he told clients this morning. “The deal would increase AT&T’s wireless revenues by 36.4 percent bringing wireless to 55 percent of consolidated revenues versus 47 percent currently. It would also raise AT&T to the number one place in terms of subscribers, revenue and EBITDA. Importantly, from a spectrum standpoint, the deal relieves significant pressure off AT&T.”

Over at BTIG Walter Piecyk applauds the deal for similar reasons. “[It] solves AT&T’s longer term spectrum issues,” he says. “It also eliminates a price aggressive competitor and blocks Sprint from merging with TMO.”

And Piper Jaffray’s Christopher Larsen states the obvious, saying the merger will make AT&T a more formidable competitor. “First, all of the carriers have been feeding off of T-Mobile’s subscriber base due to its lack of differentiated service,” he writes. “AT&T’s market position and reputation should help stem subscriber defections over the long-term (there could be some losses early due to merger-related distractions or forced divestitures). Second, the combination should allow AT&T to accelerate its 4G network build. Finally, AT&T’s new spectrum position gives it an opportunity to build the premier wireless network in the nation, as it relates to quality and capacity.”

At Oppenheimer, Tim Horan praises it as a wise strategic move, noting that it undermines a potential Verizon-Sprint deal. “In our view, from AT&T’s perspective, this is a smart time to come to an agreement of this magnitude and we believe the deal should be approved by regulators,” he writes. “By taking the strategic initiative, we believe [the carrier] is precluding other major deals from taking place.”

Consensus, then, seems to be that the deal is a savvy one which brings serious scale benefits and synergies–if AT&T can win the necessary regulatory approvals.

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