Why Media Companies Will Feel the Pinch if AT&T and T-Mobile Seal the Deal

When the No. 3 U.S. ad spender, AT&T, makes a bid to acquire a marketer that spends $500 million-plus domestically, the media world braces itself. But AT&T's $39 billion bid for T-Mobile could mean fewer ad dollars for U.S. media companies -- if the deal goes through. Just not at first. If history is any guide, the combined entity will likely, over time, spend less than the $2.7 billion they collectively spent in U.S. measured media in 2010, according to Kantar Media. If the Federal Communications Commissions and Department of Justice approve the deal -- this will probably take a while -- media companies could enjoy an initial uptick in ad spending as the new entity tries to get the word out. After all, it happened before: AT&T's stated ad spending, including measured media and other marketing expenses, peaked at $3.43 billion in 2007, after AT&T acquired regional provider BellSouth Corp., according to financial filings. That bump reflects heavy spending that year to rebrand Cingular as AT&T, which the carrier gained full ownership of during the acquisition. If AT&T and T-Mobile become one entity, the marketer will have to let T-Mobile's 34 million subscribers -- and any potential customers -- know that it's all just AT&T. (Last time, the tagline was "Cingular is now the new AT&T"; AT&T spokesman declined comment for this story.) AT&T's ad spending then dropped to $3.05 billion in 2008 and $2.79 billion in 2009 -- one indication of efficiencies found from advertising one brand. However, spending rose to almost $3 billion in 2010, reflecting heavy spending to roll out U-verse, according to filings. The silver lining is that the two other major wireless carriers -- Verizon and Sprint -- will probably not stand pat. Sprint is already highlighting it's position as way-under underdog in the face of AT&T T-Mobile. "A combined AT&T and T-Mobile would be almost three times the size of Sprint, the third largest wireless competitor," the company said in a statement. "If approved, the merger would result in a wireless industry dominated overwhelmingly by two vertically-integrated companies that control almost 80% of the US wireless post-paid market. ... The DOJ and the FCC must decide if this transaction is in the best interest of consumers and the US economy overall, and determine if innovation and robust competition would be impacted adversely by this dramatic change in the structure of the industry." The telecom market has traditionally been highly reactive -- remember the "Map for That" ad battle between AT&T and Verizon over 3G coverage? A new leader in U.S. wireless service could mean Verizon and Sprint will up spending to combat the new giant. For one, Verizon, which is the No. 1 U.S. carrier for now, will likely have to scrap its current position as "America's Largest and Most Reliable Wireless Network." If the deal goes through, AT&T will have the largest market share in the U.S., with more than 38% to Verizon's 31%, according to ComScore's December figures. There's also a brewing battle over 4G claims, which could buoy any spending the merger takes out of play. AT&T on Sunday announced plans for high-speed mobile internet 4G. Verizon currently supports 4G LTE technology -- arguably the fastest high-speed mobile data in a market. However, all the carriers are claiming 4G speeds and, with the acquisition, AT&T is emphasizing its commitment to roll out technology similar to Verizon's. AT&T says the transaction will expand 4G LTE to 95% of U.S. population. But the AT&T/T-Mobile deal has not yet been consummated. "There's still some time before the deal closes, so for now we'll compete," Rene Obermann, CEO of T-Mobile parent Deutsche Telekom, said in a CNBC interview. It will take time for the FCC and Justice Department to evaluate the deal. Until then, T-Mobile's MyTouch ads -- early ads in this campaign bashed AT&T's iPhone service -- will continue on as planned, said a spokesman. "Until the deal is completed, which could take up to a year, we are operating as usual -- an independent company and our marketing strategy remains in place," he said via email.

Why Media Companies Will Feel the Pinch if AT&T and T-Mobile Seal the Deal

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