Does any AT&T venture into Europe make sense?

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The recent rumours that AT&T is mulling a European acquisition are based on the idea that the company can escape growth constraints within its home market and build fresh revenues elsewhere.

Unnamed sources cited by the Wall Street Journal say AT&T is looking at European operators as acquisition targets, betting it can roll out LTE technology in Europe faster and make more money from new pricing schemes.

Operators supposedly under consideration include the UK-based EE and 3 UK, together with KPN in the Netherlands. Vodafone has also been mentioned, which indicates how quickly a rumour can detach itself from common sense. 

Yet would a European purchase by AT&T actually make sense?

AT&T has a track record of attempting to break into Europe, the first being in 2007 when it failed in a joint bid with América Móvil with the aim of buy a controlling stake in Telecom Italia. This was followed in the same year by speculation that it was interested in buying a stake in Vodafone, which also came to nothing.

AT&T stumbled again when it attempted to acquire Deutsche Telekom's T-Mobile USA in 2011, with the American antitrust authorities suing to block the merger, which AT&T and DT ultimately abandoned.

Perhaps the failure of its bid for T-Mobile was the trigger for AT&T to look outside its home shores again, given that the valuation of mobile operators in Europe has dropped significantly since the global financial crisis started in 2008, followed by the ongoing debacle within the Euro zone.

However, the idea that a U.S. mobile operator could reinvigorate its fortunes by venturing into Europe has been questioned by analysts. "The logic of diversifying into European telecoms as a solution for a growth deficit in the U.S. is not clear," Robin Bienenstock, an analyst at Bernstein Research, wrote in a research note.

"If growth in the U.S. looks poised to stall, growth in Europe already has," Bienenstock wrote. "Valuations in Europe are attractive but global diversification is unlikely to be greeted warmly by U.S. investors, in our view."

There is also the matter of European telecoms and competition regulators interfering with any deal that could see consolidation, given their preference for at least four mobile operators in each country.

While the two UK operators, EE and 3 UK, could be rated as potential takeover targets--given that EE's parents have hinted in the past they could be open to offers, and 3 has struggled to make a real impact--would either really transform AT&T's revenue growth?

Perhaps the prospect of competing with new entrant Softbank, an operator that built its business by luring customers from its larger, older and entrenched Japanese mobile operators, has spurred AT&T to look outside its domestic market. Softbank is seeking regulatory approval for its $20.1 billion (€15 billion) deal to buy 70 per cent of Sprint Nextel, which it hopes to get by mid-year.

But is Europe the right place to look?--Paul