AT&T Wakes Up From Its T-Mobile Dream

AT&T has put an end to its $39 billion quest to take over T-Mobile Monday, announcing that it will decline to challenge the FCC’s claims that the deal would lead to fewer consumer choices, poor service and higher prices.

The proposed deal with T-Mobile’s parent company, Deutsche Telekom, announced in March, was supposed to increase the company’s ability to extend service throughout the U.S., according to AT&T.

Mounting Opposition

The proposal was supported by some major tech players, including Facebook, Microsoft and Research In Motion; however, the deal faced stiff opposition from consumer advocacy groups and wireless competitors, most notably Sprint, who said that the deal would create a duopoly and lead to a decrease in innovation and increased prices.

The deal would have combined the second-largest and fourth-largest carriers in the U.S., making it the country’s largest provider.

The FCC and the Department of Justice recently objected to the deal, with the latter launching a lawsuit last August.

When the FCC aired its grievances regarding the proposal last month, it was clear the deal was facing an uphill battle.

“AT&T realized the hurdles that confronted it from both the FCC and DoJ. AT&T faced significant challenges given the skepticism from both agencies,” Michael Carrier, law professor at Rutgers School of Law, told the E-Commerce Times.

AT&T this week reiterated its concerns that blocking the buyout would only prolong a spectrum shortage.

AT&T’s stock was trading down after hours but took a turn upwards into the morning, while Sprint and Verizon were both up.

AT&T denied our requests to comment beyond the press release.

The Losers

“The biggest loser here is Deutsche Telekom because it has planned to exit the U.S. for a long time, and this episode made it waste several months. Besides, the offer from AT&T was great from Deutsche Telekom’s viewpoint,” Aapo Markkanen, senior analyst in consumer mobility at ABI Research, told the E-Commerce Times.

DT will receive about $4 billion from AT&T in a breakup fee agreed upon before the deal was announced. The companies will also enter into a roaming agreement.

However, DT also still has T-Mobile on its hands, and that carrier now faces a fiercely competitive market with no hope of being sheltered by AT&T. Because DT is so heavily invested in Europe and may still be eager to rid itself of T-Mobile, the smallest of the major U.S. providers might be facing the rockiest road ahead.

“I’m not convinced that the FCC ever thought this through from this angle — does having a weak and potentially under-investing T-Mobile really benefit the mobile consumers as a whole?” Markkanen said.

The Winners

Sprint, on the other hand, got the results it’s advocated for since March. The wireless provider vocally opposed the deal, saying AT&T didn’t actually need the spectrum and warning the deal would actually be bad for consumers.

“Today’s telecoms business is more and more a scale-driven business, and now Sprint won’t be lagging that much behind in terms of scale. However, the fact that T-Mobile remains in the picture for now doesn’t change the fact that Sprint itself remains small, and it will have to invest substantially in the next years,” said Markkanen.

The biggest winner, though, might be the FCC and the Department of Justice. The federal agencies were able to flex their muscles and uphold antitrust laws.

“This shows that antitrust law still has teeth. Many mergers have been allowed in recent years, but this shows that if a merger would lead to too much market power, with not enough justifications, it could be challenged,” said Carrier.

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Walmart Announces Merchandise Hub for Netflix

Walmart and Netflix are teaming up to sell merchandise pegged to the streaming media provider’s content.

“Through this new partnership, Walmart will not only offer products that bring the imagination of Netflix creators into reality, but Walmart customers and Netflix superfans will also find a new, exciting entertainment destination,” Walmart Executive Vice President Jeff Evans wrote in a news release Monday.

“The Netflix Hub brings together some of its most popular shows in its first digital storefront with a national retailer,” he added.

Merchandise will be tied to such shows as “Stranger Things,” “Nailed It!,” “CoComelon” and “Ada Twist, Scientist.”

Among the items offered when the Hub opens this fall are the Ada Twist Cuddle Plush ($10.97), “Squid Game” t-shirts, the “Stranger Things” Bluetooth cassette player ($64.88) and the Witcher Netflix Transformed Geralt Dark Horse Collectible Statue ($59.88).

Evans also noted the Hub will also offer a feature called Netflix Fan Select. It offers fans of Netflix shows an opportunity to vote for merchandise they’d like to see from the service’s stable of favorites.

Competing With Amazon

The new partnership will have benefits for both Walmart and Netflix.

Walmart wants to compete with Amazon, and part of that competition includes streaming services, maintained Ross Rubin, the principal analyst with Reticle Research, a consumer technology advisory firm in New York City.

“A partnership with Netflix could be used for further collaboration. Walmart might start offering select content from Netflix, for example,” he told the E-Commerce Times.

“There’s a lot of ways it could work without Walmart offering the full-blown Netflix service,” he added.

Zain Akbari, the equity analyst for Walmart at Morningstar, an investment research company in Chicago, noted that the partnership allows the retailer to capitalize on media-linked commerce without making the kind of investment Amazon made to do it.

Although Walmart sold its Vudu streaming service in 2020, its interest in interactive and shoppable media remains, he explained.

“From its standpoint a deal like this allows Walmart to focus on what it does best while leaving the content side of the equation to an established leading player,” Akbari told the E-Commerce Times. “Ultimately, it’s another avenue by which Walmart can expand its building e-commerce footprint.”

Good Business Move

“Allying itself with one of the two streaming market leaders — Netflix and YouTube both capture about six percent of total TV time — makes good business sense for Walmart,” added Charles King, the principal analyst at Pund-IT, a technology advisory firm in Hayward, Calif.

“The new storefront should please the company’s existing clients and attract new customers, and also provide a point of competitive differentiation from Amazon,” he told the E-Commerce Times.

Having exclusivity on products from Netflix’s hit shows is another benefit of its new partnership.

“Squid Game is a perfect example,” noted Michael Inouye, a principal analyst atABI Research.

“You can imagine what the opportunity would look like if this partnership was already in place and Walmart was the only place for official Squid Game Halloween costumes,” he told the E-Commerce Times.

He added that there is a lot of value but also a lot of cost in original programming, but to date, no one has done as well as Netflix with it.

“This allows Walmart to generate some of the same benefits to their core operations of an in-house streaming service without having to make those investments in original content,” he said.

Bricks and Mortar Prize

Netflix, too, benefits from the new arrangement.

“Walmart’s massive size and geographic reach make it a great partner for Netflix to reach shoppers,” King observed. “The new store should help drive sales during the upcoming holiday shopping season.”

“Netflix has tried for a while to monetize its content other ways. Selling merchandise is one of them,” added Morningstar Netflix equity analyst Neil Macker.

“Netflix is not an e-commerce company,” he continued. “It’s a streaming company. It has a different business model than a pure e-commerce company. By working with Walmart, they can get help with building a site, fulfillment, shipping and things like that.”

Netflix is also looking to diversify beyond subscriptions for its streaming service.

“It’s already announced its movement into games,” Rubin noted. “This is a way to take a page from Disney’s playbook.”

“Disney is very skilled at driving merchandise from characters in its franchises,” he continued. “Walmart offers a strong retail presence from which Netflix could potentially build that and realize more revenue from its original content and franchises.”

Netflix may also be looking beyond online involvement with Walmart.

“If Netflix could get into Walmart’s brick and mortar stores, that would be the bigger prize for Netflix,” he said. “To have a section of the stores promoting its properties would be a big win for Netflix.”

Crucial Channel

Inouye believes that in time, Walmart will become a crucial distribution channel for Netflix.

“Since many of Netflix’s shows are launched all at once — although there are a growing number that launch on a timed schedule — it can be extra challenging for Netflix to keep excitement up around a TV series when the next launch may be more than a year away,” he explained.

“Having merchandise and content to keep fans invested and engaged in this popular IP is massive for Netflix,” he said.

Creating original content can be a hit or miss proposition, he noted. Selling merchandise can help offset the cost of the misses.

Like Disney, Netflix would like to leverage its IP well beyond the video content itself, he maintained.

“Netflix is still in its early days here,” he said, “but it is starting to expand into new territories and opportunities and the Walmart deal could become a key piece to that strategy.”

“This is particularly critical in those markets, like North America, where future subscription growth is limited,” Inouye added.

“In these more mature markets revenue growth has to come from price increases or these alternate channels,” he continued. “The latter allows them to keep engagement higher, bring additional revenue, while ideally slowing the rate of subscription price hikes, which helps maintain — and slowly grow — the installed base.”

“Other content companies have looked to marketing and selling merchandise to bring additional revenue by capitalizing on hot IP — Rovio for example has done this with its “Angry Birds” IP — but with Netflix, this could be on another scale,” he concluded.

John P. Mello Jr.

John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.

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