Some investors may have thought that telecom mergers-and-acquisition activity would quiet down, but my telecom analyst colleague Robert Kaminski tells me that there is still more to come and that Washington will still feature prominently.
AT&T's (T) still-new announced purchase of the prepaid provider Leap Wireless (LEAP) will keep deal attorneys and Washington advocates busy through the summer, into the fall and likely into the first quarter of 2014, by our early estimates.
We ultimately see the Leap purchase being approved by regulators with little to no divestitures above what has already been offered. AT&T's plans to sell Leap's 700 MHz spectrum covering Chicago helps, in our view.
The administration's blocking of the proposed deal between AT&T and T-Mobile (TMUS) in 2011 caught us by surprise, but we believe that the move effectively put all the cards out on the table. The public proceeding there and in later deals has provided us with a regulatory framework, however arbitrary, in which to think about wireless telecom M&A and the proposed Leap transaction.
In short, we see a focus by the administration on maintaining the balance of four nationwide wireless carriers, a.k.a. the "Big Four" of Verizon (VZ), AT&T, Sprint (S) and T-Mobile. We believe the government will approve deals except for those that remove a "Big Four" player. In other words, foreign deals (such as Softbank-Sprint), regional deals (T-Mobile-MetroPCS (PCS)) and asset buys (Verizon-SpectrumCo) will continue to pass muster.
Since the Leap purchase fits nicely into this model, it is also no surprise that smaller carriers U.S. Cellular (USM) and nTelos (NTLS) have outperformed the market since the Leap announcement, as investors bid up other regional-deal plays.
On the question of a move from four to three, FCC commentary in the record concludes that such a development could result in coordination and collusion among the remaining three. However, we note that a lawyer recently remarked to us that a move from four to three isn't part of the typical antitrust analysis.
Given the amount of M&A action over the past year and the activity queued up for next year, it may be hard to imagine more. While the AT&T-Leap deal is in progress, we are watching Dish Network (DISH) for a move into the wireless market: a spectrum sale, wireless-carrier merger, a wireless joint-venture or a network share.
Investors continue to ask us to handicap the regulatory outcome for a Dish-DirecTV (DTV) merger, given speculative commentary by both companies about such a deal. We have held a negative view on the regulatory outlook for the deal for many of the same reasons it was rejected when originally proposed over 10 years ago: In a nationwide market with only two players (satellite video), we see this Justice Department still not permitting the removal of a competitor.