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Monday, March 21, 2011

AT&T & T-Mobile deal: what does it mean?

~ "I used to be a total zero.. no friends, no girlfriend, no job.. a real basketcase.  THEN, I bought a cellphone.. Look at me now! See how cool I sit?"

As of 2p today, the Dow is up about 200 pts to 12,037 based on a deal in which AT&T would purchase T-Mobile from Deutsche Telekom for $39billion ending the company's involvement in the US marketplace.

Stock traders love these types of mergers and acquisitions because it means profit and like rats to filth, traders and investors must have their daily fill of profit.

Generally speaking, are mergers and acquisitions really good for the bottom 98%?

Usually no.

First, lets say for simplicity sake, both AT&T and T-Mobile has 50,000 employees.  When two companies merge or one buys out another, it means there's overlap-- people doing the same functions who were needed when there were 2 businesses but not when there's only one.

So that means layoffs--  lots of them.  So in this instance, if you work for AT&T or T-Mobile, you have to be nervous unless you possess specialized skills that are not easily replaced.   In addition, sometimes a business will use the fear of layoffs to negotiate salary reductions for both its employees and the company its swallowing up.

Second, a business does not always purchase another because its seeking to expand.  Sometimes it buys a business to kill it off because that business undercuts them prices.   This is what's happening with the AT&T acquisition of T-Mobile.   T-Mobile offers the lowest prices of all cell-phone carriers in terms of monthly contracts, and unlike AT&T, you do not have to be locked into a 2-year deal with T-Mobile.

"While rates for AT&T customers may not go up, T-Mobile customers will either have to get used to paying more or look for service elsewhere, among smaller carriers like Metro PCS and Cricket...  The merger could also mean fewer phone options and, ultimately, less innovation. To save money... it's likely that AT&T and T-Mobile will consolidate their phone options for consumers. With fewer phones on the market, customers might find that it's harder to find discounts and rebates. Whenever there's less competition, there's less of an incentive to offer deals". (ABC News)

The 'good news' if there is any, is that this impact on consumers isn't immediate.  It will take a couple of years before these changes become reality; about a year to close the deal, and then probably another year to combine their systems.

So in summary, why did the market dramatically spike today?

Ans:  An AT&T acquisition of T-Mobile means higher investor profit, eventual worker layoffs (or reduction in salaries) which Wall St Loves, higher costs for consumers and less choice.  Remember, if Wall St is ever 'happy', it means you should not be.

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