Profit from the Death of a Mobile Mega-Merger
Written by Jared Levy, Editor, Option Strategies Weekly
Friday, September 2, 2011
You might be very surprised!
The $39 billion mega-merger of AT&T (NYSE:T) and T-Mobile is all but dead... killed by the Department of Justice's antitrust lawsuit. The way the two stocks are behaving, there is no chance this deal will get done. The action taken by the DOJ came extremely fast and in the form of a brick wall.
Is the Deal with AT&T and T-Mobile Good for Consumers?
There are arguments on both sides. Some say that the merger will bring jobs and better pricing. Others that think the duopoly between Verizon and AT&T will force customers to accept mediocre service, non-competitive rates and less selection of services.
The second is probably more right. Two mega-companies with about 100 million customers each would be able to reduce their costs and increase profits so much that they would essentially make it impossible for another carrier to compete. They could provide lackluster service and set prices...not a good consumer environment.
AT&T is going to fight this, but I doubt they will win. If the deal does completely fall apart, AT&T will have to pay a breakup fee of $6 BILLION to T-Mobile (owned by German company Deutsche Telekom). That's a big charge, considering that 97% of AT&T's entire network was supposed to be upgraded to 4G (that's the newer, faster generation of technology) at a cost of $3.8 billion.
It looks like the consumer will be penalized after all...
Without this deal, AT&T, T-Mobile and others will have to step up competition by improving their networks and technology to attract customers. Without the "instant-growth effect" that AT&T thought it was going to have, it has to pick up the pace. Otherwise, coveted iPhone and Android power-users like me are going to leave them for a cheaper, better alternative.
Rise of the Smartphone
You see, I do EVERYTHING on my phone, and I use a ton of bandwidth. I'm not alone: The number of global smartphone users is growing at a breakneck pace, and phone companies are actually working against us.
My carrier, Sprint, is one of the only phone companies to offer unlimited data usage over its network. AT&T, Verizon (VZ:NYSE) and even T-Mobile do NOT offer any unlimited plans: They actually charge you by usage, and even throttle your speed down if they notice you are downloading a lot of data. Thanks, guys...
The major mobile carriers are not just doing this for greed and profit. Their networks are running at full capacity. If more and more users are added, customers will see dropped calls and slow downloads. Not good for retention.
Just about every phone sold now is a smartphone that uses a ton of Internet bandwidth. The industry has to find a solution! But the best solution may not be the obvious one.
I believe there will be a renaissance of the unlimited plan. Once the public gets completely sick of the high rates for phone plans, they will demand less expensive, all-inclusive ones. It probably won't come from the big carriers themselves, who are too cheap and unwilling to spend on upgrading their systems.
This rebirth will come from the newcomers.
Most phone-carrier networks are in dire need of repair, upgrades and expansion. If they expand, they are going to spend money and be less likely to lower costs for users like you and I (Shame that $6 billion isn't going into AT&T's dropped-call network.).
As these selfish companies lollygag and try to appease shareholders, companies like Clearwire Corporation (NASDAQ:CLWR) may have a serious boost in profits.
It wouldn't be a stretch to see a corporation like Google (GOOG) (or someone else) step in to fund or merge with a company like Clearwire. A company like Google could provide the data portion of their service and improve Clearwire's already huge and fast-growing network.
Clearwire, who built the first 4G network in the U.S., could be a serious contender for the new wireless America. For $55 per month, you can basically go anywhere in the country and get wireless Internet through Clearwire. They are currently the fastest-growing wireless company in the U.S., adding new areas and cities on a daily basis.
Sprint, Comcast, Time Warner and others already use Clearwire for their wireless services. I think we are just seeing the tip of the iceberg for their potential growth.
Other benefactors of a massive system upgrade will include American Tower (NYSE:AMT) and CrownCastle International (NYSE:CCI). Both lease out wireless antennas and provide infrastructure solutions.
Last but not least, you also should consider Skyworks Solutions (NASDAQ:SWKS). This company's products are found in both the infrastructure and the smartphones themselves. All these companies stand to benefit from the mobile wars that rage on.
And while everyone else is stuck in the Stone Age with T-Mobile, AT&T (NYSE:T) and Verizon (NYSE:VZ), keep your eyes on the prize and look for the emerging future trends in wireless.