On Sunday AT&T announced its intent to spend $39 billion in cash and stock to purchase T-Mobile USA, the #4 wireless operator in the US. The move, much like Cingular’s 2004 acquisition of AT&T Wireless, would vault the #2 provider over Verizon Wireless into a dominant leadership position. Our clients can read Forrester’s take from a product strategy perspective shortly; here’s a summary:
For AT&T, this is all about scale. The acquisition, were it to pass regulatory muster (no slam dunk that), addresses a number of scale challenges for AT&T. Most importantly, it delivers the precious spectrum assets needed to deploy a robust, nationwide LTE network; AT&T says that network will, as a result, ultimately be available to 95% of Americans, 46.5 million more than currently planned. It also delivers a boatload of extant base stations, many fed by Ethernet or fiber backhaul, which will help AT&T bolster its service quality (iPhone owners please don’t hold your breath). And it delivers a skilled radio frequency team that will help the company plan and deploy its next-generation network.
Those supplying products need also scale. This new customer base of nearly 130 million subscriptions (again, assuming regulatory approval and the unlikely case of no divestitures) represents a huge opportunity for product strategists at device makers, platform owners, and application providers. But meeting that opportunity will, for device makers, mean taking a haircut on margins in light of AT&T’s purchasing power. We think platform providers like Microsoft ought to consider the upside of an exclusive to tap into AT&T’s rich marketing budget — provided they can get a partner to bring a decent tablet to the market at the same time.