Both AT&T and HTC are in similar positions this week; their major mergers have hit major snags.
AT&T’s planned merger with T-Mobile has hit a huge snag. The FCC, over the past 24 hours, has moved to block the merger, citing no way to maintain a competitive wireless landscape. The Federal Communications Commission, and the Department of Justice both must sign off on the planned merger, and all federal lawsuits (such as from Sprint and C Spire Wireless) must be dismissed, in order for the merger to take place.
HTC announced this morning it was reconsidering its planned merger with S3, the graphics chipset manufacturer. This news came within a day of the ITC ruling that Apple did not infringe on S3’s graphics patents. HTC had planned to acquire S3, in an effort to stave off numerous patent infringement claims dating back to the original HTC Touch smartphone.
For AT&T, the challenge in the short-term is difficult. AT&T must now contemplate suing the FCC to challenge its discretion in blocking the merger. Such actions do not have a stellar track record. Likely, AT&T will have to make significant concessions in a new application for the merger, that will require AT&T to make more costly operational changes. In short, AT&T will have to commit to hiring and maintaining more workers in the United States than they wish to. This cost will likely be massive, as the Obama administration will require those job numbers to hold through for years to come.
Conversely, HTC has more problems in the long-term. HTC can easily back out of the S3 merger, with relatively small penalties in terms of an aborted merger. HTC was not intending to acquire S3 for its technology, but rather, patents that are not nearly worth what they were previously. HTC could counter-offer for a smaller acquisition, but it would have to be a mere fraction of what was previously offered. The problem for HTC is their white knight, that would force Apple to come to the settlement table, is now gone.
These problems will all affect the consumer. If AT&T cannot justify the newfound costs of a merger, it will mean more competition in the wireless industry. T-Mobile will be forced to re-hire an ongoing brain-drain of merger-fearing employees, and rebuild a plan to bring on new investors, or stand alone in the industry once again.
Similarly, HTC’s possible-abortion of the S3 acquisition could mark the beginning of talks to make a multi-billion dollar payout to Apple. If so, it will mean higher device costs for consumers, and also embolden Apple to begin pursuing other Android manufacturers. While Microsoft is making more money from Android patent pacts, than on Windows Phone 7 licenses, Apple could provide to make such arrangements cheap in comparison. In the end, Apple could be able to compete with smartphone manufacturers not just as a premium device provider, but ensure royalty costs lock out newcomers, as well as force entry-level smartphone costs to climb as well.