AT&T May Benefit the Most from Sprint’s iPhone Deal
Source: Wikipedia
The recent Wall Street Journal report that Sprint (NYSE:S) will begin selling the new Apple (NASDAQ:AAPL) iPhone in October of this year has sent waves through the telecom industry and ironically Sprint may not be the biggest beneficiary. Although this deal will help Sprint gain more subscribers and reduce churn, it could be dilutive to its margins due to the higher subsidy costs associated with the iPhone (see Why Investors Are Divided Over Sprint iPhone Deal). Additionally, the deal could have significant implications for AT&T’s (NYSE:T) proposed $39 billion acquisition of T-Mobile which would vault AT&T ahead of Verizon (NYSE:VZ) as the largest wireless player in the U.S.
Our $38.75 price estimate for AT&T stock is about 35% above market price.
Sprint’s case against AT&T T-Mobile merger now weakened
After the announcement of the AT&T/T-Mobile merger in March this year, Sprint vehemently opposed the deal, mentioning that it would put the rest of the telecom industry at the mercy of AT&T and Verizon. Sprint argued that the deal would make the U.S. wireless market an effective duopoly, and one of the effects would be that Sprint would not have access to the best wireless handsets. For this reason among others, Sprint has argued that the merger would be anti-competitive. However, if the iPhone does land on Sprint’s network, it will be difficult for the company to maintain this argument against the merger.
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How does AT&T benefit?
The primary motivation behind AT&T’s proposed acquisition of T-Mobile was T-Mobile’s spectrum that will enable AT&T to expand capacity and extend 4G LTE service to more customers than it had originally planned. However, on top of Sprint’s complaints, the deal also faces an antitrust review by the Department of Justice and the FCC has asked AT&T to justify such a massive purchase of spectrum (see AT&T Faces Another FCC Hurdle in Bid for T-Mobile).
AT&T has argued that the proposed acquisition of T-Mobile would not limit competition and disrupt innovation in the telecom market, but rather improve its service in a bid to provide 4G service to its customers. If Sprint does land the iPhone this year, AT&T can make a case that Sprint’s competitive position may actually improve, indicating that there is plenty of competition in the U.S. wireless market.