Suzanne Staton' blog: T-Mobile May Suffer if AT&T Deal Fails

By JENNA WORTHAM

Published: September 1, 2011

When AT&T agreed to buy T-Mobile USA in March, the deal looked like a happy fate for a company that had been losing customers and facing declining sales.

Stephen Yang/Bloomberg News

T-Mobile faces increasing competition from smaller companies like Virgin Mobile and Leap.

But should the lawsuit filed by the Justice Department on Wednesday kill the proposed merger, some analysts say it could leave T-Mobile in a much worse position than it was before the deal was announced, its competitiveness sapped by months spent in limbo.

?This is a business that is treading water,? said Robin Bienenstock, an analyst at Sanford C. Bernstein & Company who tracks T-Mobile and Deutsche Telekom, its parent company. ?They have to go back into the market in the meantime, and they are going to have to figure out a way to build momentum in their core business.?

T-Mobile has long staked its reputation on offering low-cost service plans. But in recent months, the company has lost ground to its larger rivals, AT&T, Verizon Wireless and Sprint, which have lured away subscribers with popular devices like the iPhone and the promise of faster networks and services.

The company?s position is especially precarious given the evolving state of the wireless industry, which is increasingly focused on customers willing to pay for expensive smartphones and the data plans that go with them. It will be harder for a company that emphasizes lower prices to stay afloat in that market, experts say.

T-Mobile?s share of the United States wireless market has slipped to 10 percent from 12 percent in 2008, according to Chetan Sharma, an independent wireless analyst. ?The biggest problem has been stagnant adds,? he said, meaning new subscribers. Over the last eight quarters, the mobile industry has added a net 33 million customers; T-Mobile has added only 89,000 of those.

But T-Mobile may have one ace up its sleeve, said Ms. Bienenstock: a network that is not clogged with millions of data-guzzling users. And although T-Mobile has not yet begun to roll out LTE, the fourth-generation wireless technology that its peers are already using or putting in place, it has invested large sums in upgrading its existing network, which uses a technology called HSPA+ that analysts say rivals the speeds of LTE.

The company could try to appeal to people looking for a cheap way to stream movies, songs and other content on their smartphones and tablets ? a tactic that could have leverage, considering that AT&T and Verizon both recently put limits on how much data customers could use without paying extra. T-Mobile is more lenient with the limits on most of its plans, slowing the access speeds for its heaviest users instead of charging more.

?They have a relatively empty and fast network,? said Ms. Bienenstock. ?You can sell cheap data and make it pretty profitable.?

But T-Mobile?s biggest challenge may be that it is no longer the only value proposition for mobile subscribers.

Consumer Reports found that customers spent $20 to $50 less per month using T-Mobile than with carriers like AT&T and Verizon. But plenty of smaller contenders are looking to expand their share of the market, including Virgin Mobile, Boost Mobile, Leap and MetroPCS.

?For a long time, they were the value brand for young people and teenagers,? said Jan Dawson, an analyst at Ovum, a technology research firm. ?It?s getting quite crowded in their core territory. Their only hope may be to reinvent themselves entirely.?

T-Mobile did not respond to a request for comment. Its parent company issued a statement on Wednesday saying that it would join AT&T in defending the merger plan in court.

Complicating matters for T-Mobile is that it has largely remained motionless for several months while waiting for the deal to close. It is likely, analysts say, that T-Mobile froze any negotiations with Apple and other hardware vendors over new phones to avoid competing with AT&T on pricing and release dates.

That could hinder the carrier?s ability to dazzle potential subscribers with new smartphones in the coming months ? a severe handicap to growth if the company were not going to be folded into AT&T.

The plot thickens if Apple announces a deal with Sprint to distribute the iPhone, as is widely expected. That would leave T-Mobile as the nation?s only major carrier without the phone.