Wireless phone companies Leap Wireless International Inc. and MetroPCS Communications, Inc. have now released their quarterly earnings report, and their results place a dimmer on the proposed US$39 billion merger between AT&T and T-Mobile USA, currently owned by Deutsche Telekom AG.
Both companies’ poor showing will prevent either company in a position to offer a viable alternative to T-Mobile as a low-cost provider of wireless service. Leap, which reported earnings after the markets closed yesterday, posted an earnings-per-share (EPS) loss of -$o.90 on revenue of US$763 million. Consensus estimates called for an EPS loss of -$0.79 on revenue of US$766 million. Still, the report has gotten a positive reception because Leap managed to add 10,000 new subscribers, compared with a loss of 200,000 customers in the same period a year ago.
MetroPCS also did not fare as well. The company reported EPS of $0.19 on revenue of US$1.2 billion. Consensus estimates called for EPS of $0.23 and revenue of US$1.22 billion. The company added 69,000 new customers in the quarter, a big drop from the 199,000 it added in the second quarter.
The competition from Sprint Nextel Corp and T-Mobile in the pre-paid market hurt MetroPCS’s revenues and earnings. This doesn’t help the AT&T/T-Mobile plan to sell off some assets to other wireless carriers as the two companies try to get their proposed merger through the regulatory process.
MetroPCS was seen as a possible buyer of those assets, but the lower revenues are not usually conducive to expansion plans.
Sprint has no interest in buying any assets that AT&T/T-Mobile want to reduce. The number three U.S. wireless carrier has fought the proposed merger from day one. Verizon Wireless and Vodafone plc has had essentially no comment on the proposed merger, but certainly has nothing to gain from a tie-up between AT&T and T-Mobile.
The U.S. Justice Department’s lawsuit to stop the merger got a boost yesterday when a federal court prevented H&R Block, Inc. from buying low-cost tax preparer TaxAct, citing anti-trust violations. The acquisition was worth less than US$300 million but the Justice Department argued that the merger would leave just two tax-prep firms, Block and Intuit Inc. Similarly, the AT&T deal would leave just one behemoth, AT&T, while Verizon Wireless would fall to a very distant second place and be virtually forced to acquire Sprint in order to stay competitive.
The inability or unwillingness of another wireless company to acquire AT&T/T-Mobile assets, coupled with the Block ruling, could be the beginning of the end for the proposed merger.