AT&T, T-Mobile: There’s No Crying in Mergers

AT&T has decided not to challenge the Federal Communication Commission’s objections to its proposed US$39 billion acquisition of T-Mobile. Given the energy, time and resources it clearly put into the effort, the company is likely still licking its wounds, but it will soon have to address the question of what to do next — as will T-Mobile and its parent company Deutsche Telekom.

The proposed deal was seen as the solution to several problems: how AT&T could extend services throughout the U.S., despite its constrained bandwidth; how T-Mobile could survive in a market where it’s a distant No. 4; and how Deutsche Telekom, T-Mobile’s parent, could finally exit the U.S.

New Questions Pending

The deal may be dead, but the problems it was meant to solve are very much alive.

In certain respects, the companies’ positions have worsened. Deutsche Telekom wasted several months as it waited to see how the proposal would play out. Ditto for AT&T, which could have been exploring other alternatives. Instead, it must now pay DT about $4 billion in a breakup fee.

T-Mobile, for its part, is still grappling with the issue of how to compete from its low perch in the market — backed by a reluctant parent to boot.

Sprint Waits on the Sidelines

Indeed, T-Mobile’s weakened state opens interesting possibilities for Sprint-Nextel, which had strongly opposed the transaction. There has been talk, for example, of a joint venture or partnership. Other possible partners include the Dish Network.

Or something more permanent than a partnership could be undertaken, suggested Boston University antitrust law professor Keith Hylton.

“It would be hilarious — to everyone but AT&T — if T-Mobile were to sell itself to Sprint, the firm that lobbied hardest to block the deal with AT&T,” he told the E-Commerce Times. “It would be a fine illustration of the benefits of lobbying to prevent your rivals from merging.”

Sprint would be in a position to pay a very low price for the acquisition, since rival firms could not compete in the bidding process without bringing on another merger challenge, he noted. Sprint would suddenly find that all of the monopolization issues it raised in lobbying against the AT&T acquisition had somehow vanished.

Capacity Issues

As for AT&T and T-Mobile, they are facing serious capacity issues, Chris Koopmans, chief operating officer at Bytemobile, told the E-Commerce Times.

They also must keep their respective tech-savvy user bases happy, which will not be easy, he said.

“AT&T has a large iPhone demographic — very demanding, performance-sensitive users — and a ton of capacity to support,” said Koopmans. “They need all the capacity they can get. T-Mobile has a large Android demographic with a heavy young subscriber population driving a lot of network traffic.”

In the current market environment, operators win and lose subscribers based on the quality of their data service, he said, and when they can no longer rely on exclusive access to hot devices, “they will have to rely on the performance of their network to carry the day.”

A Network Sharing Option

The two operators will have a roaming agreement, “but beyond that, they could consider network sharing of their fourth-generation LTE networks,” Azita Arvani of the Arvani Group told the E-Commerce Times. “The big issue for both AT&T and T-Mobile is where they are going to get additional spectrum to properly roll out their next-generation LTE networks.”

Verizon has limited the two companies’ options by its recent acquisition of spectrum from SpectrumCo, a joint venture between Comcast, Time Warner Cable, and Bright House, she said.

“AT&T will push harder to get the MediaFLO spectrum from Qualcomm, and T-Mobile will seriously consider other spectrum partners, such as Dish Networks,” according to Arvani.

However, if they opt for network-sharing with their fourth-generation LTE networks, they could create one LTE network — with one set of costs and spectrum that both operators can use, she pointed out. “Network sharing has been done in Europe, but not so much in the U.S. yet.”

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CRM Buyer Channels

Walmart Announces Merchandise Hub for Netflix

Walmart and Netflix are teaming up to sell merchandise pegged to the streaming media provider’s content.

“Through this new partnership, Walmart will not only offer products that bring the imagination of Netflix creators into reality, but Walmart customers and Netflix superfans will also find a new, exciting entertainment destination,” Walmart Executive Vice President Jeff Evans wrote in a news release Monday.

“The Netflix Hub brings together some of its most popular shows in its first digital storefront with a national retailer,” he added.

Merchandise will be tied to such shows as “Stranger Things,” “Nailed It!,” “CoComelon” and “Ada Twist, Scientist.”

Among the items offered when the Hub opens this fall are the Ada Twist Cuddle Plush ($10.97), “Squid Game” t-shirts, the “Stranger Things” Bluetooth cassette player ($64.88) and the Witcher Netflix Transformed Geralt Dark Horse Collectible Statue ($59.88).

Evans also noted the Hub will also offer a feature called Netflix Fan Select. It offers fans of Netflix shows an opportunity to vote for merchandise they’d like to see from the service’s stable of favorites.

Competing With Amazon

The new partnership will have benefits for both Walmart and Netflix.

Walmart wants to compete with Amazon, and part of that competition includes streaming services, maintained Ross Rubin, the principal analyst with Reticle Research, a consumer technology advisory firm in New York City.

“A partnership with Netflix could be used for further collaboration. Walmart might start offering select content from Netflix, for example,” he told the E-Commerce Times.

“There’s a lot of ways it could work without Walmart offering the full-blown Netflix service,” he added.

Zain Akbari, the equity analyst for Walmart at Morningstar, an investment research company in Chicago, noted that the partnership allows the retailer to capitalize on media-linked commerce without making the kind of investment Amazon made to do it.

Although Walmart sold its Vudu streaming service in 2020, its interest in interactive and shoppable media remains, he explained.

“From its standpoint a deal like this allows Walmart to focus on what it does best while leaving the content side of the equation to an established leading player,” Akbari told the E-Commerce Times. “Ultimately, it’s another avenue by which Walmart can expand its building e-commerce footprint.”

Good Business Move

“Allying itself with one of the two streaming market leaders — Netflix and YouTube both capture about six percent of total TV time — makes good business sense for Walmart,” added Charles King, the principal analyst at Pund-IT, a technology advisory firm in Hayward, Calif.

“The new storefront should please the company’s existing clients and attract new customers, and also provide a point of competitive differentiation from Amazon,” he told the E-Commerce Times.

Having exclusivity on products from Netflix’s hit shows is another benefit of its new partnership.

“Squid Game is a perfect example,” noted Michael Inouye, a principal analyst atABI Research.

“You can imagine what the opportunity would look like if this partnership was already in place and Walmart was the only place for official Squid Game Halloween costumes,” he told the E-Commerce Times.

He added that there is a lot of value but also a lot of cost in original programming, but to date, no one has done as well as Netflix with it.

“This allows Walmart to generate some of the same benefits to their core operations of an in-house streaming service without having to make those investments in original content,” he said.

Bricks and Mortar Prize

Netflix, too, benefits from the new arrangement.

“Walmart’s massive size and geographic reach make it a great partner for Netflix to reach shoppers,” King observed. “The new store should help drive sales during the upcoming holiday shopping season.”

“Netflix has tried for a while to monetize its content other ways. Selling merchandise is one of them,” added Morningstar Netflix equity analyst Neil Macker.

“Netflix is not an e-commerce company,” he continued. “It’s a streaming company. It has a different business model than a pure e-commerce company. By working with Walmart, they can get help with building a site, fulfillment, shipping and things like that.”

Netflix is also looking to diversify beyond subscriptions for its streaming service.

“It’s already announced its movement into games,” Rubin noted. “This is a way to take a page from Disney’s playbook.”

“Disney is very skilled at driving merchandise from characters in its franchises,” he continued. “Walmart offers a strong retail presence from which Netflix could potentially build that and realize more revenue from its original content and franchises.”

Netflix may also be looking beyond online involvement with Walmart.

“If Netflix could get into Walmart’s brick and mortar stores, that would be the bigger prize for Netflix,” he said. “To have a section of the stores promoting its properties would be a big win for Netflix.”

Crucial Channel

Inouye believes that in time, Walmart will become a crucial distribution channel for Netflix.

“Since many of Netflix’s shows are launched all at once — although there are a growing number that launch on a timed schedule — it can be extra challenging for Netflix to keep excitement up around a TV series when the next launch may be more than a year away,” he explained.

“Having merchandise and content to keep fans invested and engaged in this popular IP is massive for Netflix,” he said.

Creating original content can be a hit or miss proposition, he noted. Selling merchandise can help offset the cost of the misses.

Like Disney, Netflix would like to leverage its IP well beyond the video content itself, he maintained.

“Netflix is still in its early days here,” he said, “but it is starting to expand into new territories and opportunities and the Walmart deal could become a key piece to that strategy.”

“This is particularly critical in those markets, like North America, where future subscription growth is limited,” Inouye added.

“In these more mature markets revenue growth has to come from price increases or these alternate channels,” he continued. “The latter allows them to keep engagement higher, bring additional revenue, while ideally slowing the rate of subscription price hikes, which helps maintain — and slowly grow — the installed base.”

“Other content companies have looked to marketing and selling merchandise to bring additional revenue by capitalizing on hot IP — Rovio for example has done this with its “Angry Birds” IP — but with Netflix, this could be on another scale,” he concluded.

John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.

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