AT&T Has An Acquisitive Eye On European Carriers — Mulling A Big Buy Or Merger, Says WSJ

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U.S. carrier AT&T is looking at counterparts in Europe with a view to making a big purchase or entering into a merger, according to a report in the Wall Street Journal. The paper quotes people familiar with the carrier’s thinking who say AT&T is considering buying a European counterpart in order to “escape constraints” on domestic growth by jumping into a new wireless market where it can “upgrade technology and roll out more lucrative pricing strategies”.

The WSJ’s sources say AT&T  is currently “studying targets”, and that a deal could come before the end of the year — if it happens at all. We’ve reached out to AT&T for comment and will update this story with any response. Update: An AT&T spokesman said: “We do not comment on rumors and speculation.”

AT&T’s options for growth in its domestic market are limited since the U.S. has relatively few carriers, meaning it needs to poach customers off rivals to grow domestically and/or expand the reach of its network. In November the company announced a plan to spend $8 billion expanding the reach of its 4G network to cover 300 million people.

AT&T’s 4G/LTE network currently reaches 275 million people — it claims to have the largest 4G network in the U.S. (but so does Verizon) — and reported 105.9 million total wireless subscribers in its Q3 results. This compares to rival Verizon’s 4G network reach of “more than 250 million people” — and 95.9 million customers. Third placed U.S. carrier Sprint reported nearly 56 million customers at the end of the third quarter of 2012. (Incidentally Sprint is in the process of being acquired by Japanese carrier Softbank which last October announced its intention to acquire 70 per cent of Sprint’s shares for $20.1 billion — that buy is slated to close mid-year.)

In 2011, AT&T attempted to buy the U.S.’s smallest carrier T-Mobile USA — which reported 33.3 million customers in its Q3 results – but dropped its bid at the end of the year after the DOJ said it would oppose the takeover. T-Mobile USA is owned by European telco Deutsche Telekom.

By contrast Europe’s telecoms landscape is far more fragmented than the U.S., with more than 100 carriers operating across the European Union plus 27 national telecoms regulators. The operational challenges of this patchwork have not passed the European Commission by. It is currently looking at ways to harmonise the region’s telecoms market to make cross-border consolidation more attractive. European telcos have also informally discussed the possibility of creating a pan-European shared network — in a scenario that could lead to rivals pooling their infrastructure to simplify operations and create cost savings.

A more harmonised, more collaborative European telecoms landscape could be one reason for AT&T to sniff around the region for possible takeover targets — albeit, it’s not clear how reform and closer ties between rivals might reshape Europe’s telecoms landscape in the near term, adding to the uncertainty.

According to a WSJ source, AT&T management has not yet made up its mind about whether a move abroad would make sense — in particular any move to enter major European markets such as the U.K., Germany or the Netherlands. U.K. telco EE (itself a joint venture between Deutsche Telekom and France Telecom) — which owns and operates the Orange and T-Mobile brands in the U.K., along with the U.K.’s first 4G network — is reportedly one of the carriers on AT&T’s radar, along with Dutch telco KPN. Earlier today BloombergBusinessweek reported KPN shares rose to a one-month high on the news that AT&T was mulling European takeovers.