Wednesday, March 23, 2011

The Marriage of AT&T and T-Mobile

Reading the article “the Real Value of Strategic Planning” reminded me of a recent deal in the U.S. wireless industry – AT&T’s acquisition of T-Mobile USA. In this entry, I would like to discuss some possible reasons of why AT&T decided to make such a move, and make some speculations on why it was successful in getting the deal.

Some quick facts first. AT&T announced the acquisition less than a week ago, that it was buying T-Mobile USA from Deutsche Telekom AG for $39 billion in cash and stock. This deal, once completed, will bring together the second- and fourth-largest U.S. mobile carriers, and change the competitive landscape of the industry significantly.

This deal came as a surprise to some people in the industry, mainly because the attention has been on a potential merger between the No. 3 carrier, Sprint Nextel Corporation, and T-Mobile USA. This raised a question in my head: What has AT&T done to jump ahead of Sprint? Surely, it is the second largest carrier; giving them probably an advantage in offering a better price to T-Mobile. But are there any factors in their strategic planning process that give them a competitive advantage in responding to industry threats?

Kaplan and Beinhocker (2003) discussed in their article that formal strategic planning process was used to “prepare minds in action”. The success of the process depends on whether participants are better prepared for the real-time job of strategic decision making, rather than having a 10-page strategic plan outlined. I would like to argue that the top management of AT&T has probably engaged in strategic planning for quite some time which allowed them to move fast in making the acquisition decision ahead of Sprint. Specifically, they should already have a clear understanding of the opportunities and challenges lying ahead of them. AT&T has been facing different levels of challenges from suppliers (e.g. Apple), customers and competitors (e.g. Verizon Wireless). If the decision-makers share a common fact base about the strengths and weaknesses of the business, it will not take long for them to pull the trigger.

Here are some examples of facts that may have been generated throughout discussions over the past months:

  • - AT&T’s wireless spectrum is experiencing increasing difficulties due to rising number of iPhone customers and exploding data traffic
  • - AT&T lost its exclusivity rights of iPhone, as its chief rival, Verizon Wireless, began to sell iPhone as well
  • - Customers have more choices now, and are complaining about the network problem and call/video quality
With the facts in hand, acquiring T-Mobile may seem to be an easy decision for AT&T’s executives as T-Mobile can bring them about 130 million customers and resolve AT&T’s capacity crunch. For more information, refer to this WSJ article:

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