AT&T’s Mobile Market Share Stagnates Without T-Mobile Deal

AT&T’s (NYSE:T) efforts to assuage the U.S. Department of Justice (DOJ) concerns aren’t bearing fruits while its troubles mount as seven more states joined the DOJ in suing to block the AT&T/T-Mobile deal that is being described as “anti-competitive” and “bad for consumers.” ^[1] Sprint (NYSE:S) also fiercely opposes this merger saying that it’ll put the rest of the telecom industry in the hands of AT&T and Verizon (NYSE:VZ). While AT&T’s net-adds continued to increase in Q2 2011, a negative outcome from the T-Mobile merger can have a serious impact on AT&T’s stock.

While we estimate AT&T’s mobile phone market share will remain roughly around 33-34% through our forecast period before the deal, Trefis members expect an increase to around 37% during the same period. The member estimates imply an upside of 5-10% to the Trefis price estimate for AT&T’s stock.

We currently have a Trefis price estimate of $38.75 for AT&T’s stock, about 40% above the current market price.

U.S. Wireless Data Service Market Grows in Q2, AT&T Maintains Position

The U.S. wireless data services reported revenues of $16.2 billion in Q2 2011, an increase of 5% q-o-q and 22% y-o-y, according to research by telecom analyst Chetan Sharma. ^[2] AT&T and Verizon together accounted for 69% of data service revenues and 62% of subscription base. Due to the growth in connected devices like tablets, smartphones and netbooks, AT&T reported more net-adds for the 7th consecutive quarter and now accounts for almost 43% of the connected devices market share in the U.S.

Struggles with AT&T/T-Mobile Merger Continue

The DOJ’s main concern against the merger has been that if the deal goes through, AT&T, Verizon and Sprint will control more than 90% of the U.S. wireless market, resulting in lower competition and higher prices for consumers. (See Government Delivers Blow to AT&T and T-Mobile Deal)

In opposition to the merger, 7 more states have joined the DOJ last week. AT&T is trying to save its $39 billion acquisition by approaching smaller wireless players to sell a significant chunk of T-Mobile’s spectrum and subscribers, but to what extent these efforts will be able to save the deal is debatable.  (See AT&T’s Plan to Save T-Mobile Deal May Not Be Enough) While talks and discussions continue, if the case if not complete by Sept 2012, AT&T will have to pay a penalty of nearly $6 billion in cash and spectrum assets. ^[1]

Our complete analysis for AT&T’s stock is here.

1. AT&T, T-Mobile merger faces new obstacle as seven states join DOJ lawsuit, Washington Post, Sept 16, 2011 [↩] [↩]
2. US Wireless Market Update Q2 2011, ChetanSharma.com, August 18, 2011 [↩]