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W D M Implications of Merger on Prepaid Market Segment This bold move marks the inevitable result of both the maturation of the prepaid wireless market and the DOJ’s takedown of AT&T’s last attempt at expansion. In refusing to allow AT&T to merge with T-Mobile, the DOJ affirmed the need for at least four major wireless carriers to maintain an adequate level of competition in the marketplace. Assuming that a smaller wireless carrier does not achieve a meteoric rise to that elite top tier overnight, consolidation between two major carriers was going to be impossible for the foreseeable future. Instead, AT&T wisely looked to the burgeoning prepaid wireless market. Though previously considered a “niche” market populated exclusively by resellers, AT&T, and to a lesser extent T-Mobile previously, has signaled that the major carriers will now directly compete in this market. The maturation of this segment of the industry should not be surprising. The recent recession and slow recovery certainly make the prospect of a prepaid plan more appealing. Further, the ubiquity of wireless technology today makes it almost impossible to operate without a mobile phone. For the large segment of the population suffering from bad credit, a prepaid phone is the only chance to be connected to this increasingly wireless society. If the DOJ and the FCC were to approve this merger, and it is difficult to imagine a scenario where they fail to do so, it may be sign of more consolidation ahead in the prepaid wireless segment of the industry. Predictions for the Prepaid Wireless Market The DOJ and the FCC will most likely approve AT&T’s acquisition of Leap Wireless. This merger does not elicit the same antitrust concerns as AT&T’s failed T-Mobile bid, nor does there seem to be any compelling public interest bar that might impede the transaction. We also predict the FCC will likely adhere to its 180-day timeline goal. T-Mobile’s recent acquisition of MetroPCS was approved by the FCC in less than five months (144 days); there is no reason to believe that this merger would be materially different in terms of issues or complexity. After governmental approval is obtained and the deal closes, we anticipate additional M&A activity in the prepaid wireless market, with two factors driving consolidation. First, the maturation, popularity and potential future growth of the prepaid wireless segment is validated by the recent spate of mergers and equity will continue to flow into this particular niche. Second, with the entrance of “Major” service providers into a space previously occupied by numerous, diverse and dispersed service providers of all shapes and sizes, we anticipate increased regulatory and tax pressures to be imposed on the masses of existing market participants. These regulatory pressures may become a factor that leads to consolidation. “...we anticipate increased regulatory and tax pressures to be imposed on the masses of existing market participants.” 91


00-WDM Final for Web
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