If the AT&T acquisition collapses, what will T-Mobile USA do?

Mike Dano

As AT&T (NYSE:T) struggles to push through its proposed acquisition of T-Mobile USA, the question becomes: What will T-Mobile do if AT&T's acquisition of the company fails? Much of the arguments for the merger revolve around T-Mobile's inability to continue as an independent company, but now some analysts are predicting that the deal only has a 10 percent chance of getting approved.

If AT&T is unable to close its acquisition of T-Mobile, AT&T will be forced to give T-Mobile $3 billion in cash and $3 billion in spectrum and roaming deals. While that will probably prop up T-Mobile in the short term, the company will still face the same problems it does today: sluggish or negative growth and increasing competition on the high end (AT&T and Verizon Wireless (NYSE:VZ)) and the low end (Leap Wireless (NASDAQ:LEAP) and MetroPCS (NYSE:PCS)). So what are T-Mobile's options?

First let's look at T-Mobile's network. The nation's fourth largest carrier operates a HSPA+ 42 Mbps network that can provide speeds  comparable to Verizon Wireless' LTE network. That's pretty good, right? With additional cash and spectrum from AT&T, T-Mobile could continue to expand and enhance its current HSPA network. Indeed, T-Mobile and Nokia Siemens Networks announced last year that they could potentially keep upgrading T-Mobile's current HSPA network to eventually support theoretical speeds of 650 Mbps. While it's unlikely that such technology would actually provide real-world speeds anywhere near that figure, it's clear that T-Mobile will be able to provide faster and faster speeds using its current HSPA network.

But an increase in network speed is only part of the equation. T-Mobile will also need more capacity to support future growth and users' increasing appetite for data. That capacity will have to come from new spectrum. So where could T-Mobile get new spectrum? Here are some options:

Clearwire. T-Mobile was in talks with Clearwire last year over a possible wholesale deal. And with Clearwire's (NASDAQ:CLWR) plans to move to LTE-Advanced technology, such a partnership makes even more sense today. T-Mobile could also partner with LightSquared.

Comcast and Time Warner Cable (SpectrumCo). Comcast, Time Warner Cable and others purchased $2.4 billion in AWS spectrum during the FCC's 2006 auction, and the venture has been sitting on the unused spectrum since then. T-Mobile could potentially purchase or lease that spectrum to boost its current AWS-based HSPA network.

AT&T. A network-sharing deal between AT&T and T-Mobile could be the result of a failed merger between the companies. Such network-sharing deals are becoming commonplace in other parts of the world, notably Europe. But a network-sharing deal probably would look very different from the current merger plans AT&T has put on the table. For example, AT&T's current acquisition plan involves moving all of T-Mobile's current HSPA subscribers off its AWS spectrum. An AT&T/T-Mobile network-sharing agreement likely won't involve such gymnastics.

An auction. The FCC is currently working to auction additional AWS-3 radio waves, and T-Mobile could be the first bidder in line. The FCC is also working to auction TV broadcasters' spectrum. However, such auctions probably won't happen quickly, and if T-Mobile's capacity constraints are anything like those the other carriers are experiencing, it could need to find a fix sooner than later.

But T-Mobile's network, while obviously important, is only part of the problem. While addressing network speeds and capacity, the carrier will also have to maintain a portfolio of devices that will keep it competitive with the likes of Verizon Wireless and AT&T. T-Mobile largely has kept pace on Android, BlackBerry and Windows Phone, but it hasn't managed to land Apple's iPhone. This is likely due to the fact T-Mobile operates a 3G network in the AWS band, which the iPhone does not support. If the lack of an iPhone continues to hound T-Mobile, the carrier will either have to convince Apple (NASDAQ:AAPL) to support AWS or it will have to find a way to offer a T-Mobile iPhone working on another network (a network-sharing deal with AT&T could pave the way for this option).

Finally, if AT&T fails in its bid to acquire T-Mobile, an independent T-Mobile will also have to maintain a competitive position in the market. So far the company's efforts in this area have fallen flat: T-Mobile lost customers in the first two quarters of this year-- despite its aggressive data, voice and device pricing. So how will T-Mobile be able to keep pace with larger competitors that could potentially offer more devices and faster network speeds? This is where T-Mobile could get inventive--the carrier's Bobsled Facebook calling service is a possible step in the right direction. T-Mobile's Kineto-powered Wi-Fi calling service is another possible example of an out-of-the-box strategy. Basically, T-Mobile needs to think beyond its ads featuring that girl in the red dress.

But T-Mobile will have to stay nimble and flexible if it wants to succeed as an independent company. I think it's possible, but I'm not giving it good odds. +Mike Dano