Investors Bullish on Verizon Despite Proposed AT&T-T-Mobile Merger

The stars may be aligning for AT&T and Verizon Communications on Wall Street.

A brokerage firm, Robert W. Baird, raised its rating of AT&T to outperform,” expressing the view that regulators will approve the companys $39 billion planned acquisition of T-Mobile USA, Reuters reported.

Meanwhile, shares of Verizon hit a 52-week high today and closed at $37.75 on the New York Stock Exchange. Robert W. Baird also upgraded Verizon and said both AT&T and Verizon should benefit from one less competitor after AT&T acquires T-Mobile USA. Shares of AT&T closed today at $29.36 on the New York Stock Exchange, not too far from the company’s 52-week high of $30.10 on Jan. 5.

Reducing the number of nationwide providers from four to three should improve pricing stability, which is all the more important in the face of surging data traffic,” Reuters quoted Robert W. Baird analyst William Power as writing in a note to clients.

San Antonio, Texas-based AT&T said it expects to close its cash-and-stock acquisition of T-Mobile USA from Deutsche Telekom in approximately one year.

AT&T, the second-largest U.S. wireless provider behind Verizon Wireless, cannot acquire Bellevue, Wash.-based T-Mobile USA without approval from the U.S. government, including the Department of Justice and Federal Communications Commission.

The merger would make AT&T the largest U.S. wireless provider ahead of Verizon Wireless and Sprint Nextel.  

In a research note published March 21, Stifel Nicolaus analyst Rebecca Arbogast said the Department of Justice could move to block the deal. 

If regulators grant AT&T permission to acquire T-Mobile USA, such approval would require significant divestitures (of operating and/or spectrum assets) in the most highly concentrated markets, and likely conditions going to data roaming, special access, and perhaps beefed-up wireless net neutrality obligations,” Arbogast wrote.

Over the last several years, U.S. regulators have approved several multibillion-dollar telecommunications mergers, including the pairings of AT&T and SBC Communications, Verizon and MCI and Qwest Communications and CenturyLink. Monroe, La.-based CenturyLink expects to close its acquisition of Denver-based Qwest on Friday.

It would be unusual, but not unprecedented, for the feds to oppose a large merger.

On Oct. 5, 1999, Sprint Corp. and MCI WorldCom announced a $129 billion merger agreement. 

But the Department of Justice sued to block WorldCom’s acquisition of Sprint, and the companies subsequently withdrew their application to combine operations.  

The Justice Department said at the time the acquisition would have resulted in higher prices for millions of consumers and businesses and potentially undermined competition since the federal government challenged AT&T’s monopoly 25 years earlier.

AT&T contends there is ample competition in the U.S. wireless market and said there are five or more providers in 18 of the 20 largest local markets.  

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