Econ 550 Cost Paper

Student of higher learning.

Strayer University

ECO 550 - Economics for Managers

Dr. Juliet Elu

Extra Credit Assignment – Cost/Price

Debra Lewis

Spring 2011

Recently, Deutsche Telecom, the parent company of T-Mobile USA, announced it plans to sale its USA division to telecom giant, AT&T for $39 billion. This acquisition combines a cash payment of $25 billion and the remaining $14 billion will be in the form of AT&T stock. If the acquisition is approved, AT&T will have 100% ownership in T-Mobile USA and Deutsche Telecom will become an 8% stakeholder in AT&T. Once approved by the FCC and Dept of Justice, AT&T will become the largest telecom carrier in the US.

With a transaction of this magnitude understanding how this acquisition would impact the long and short run as well as the potential opportunity costs is very important. The cost of this acquisition will amount to approximately 7 times the 2010 adjusted EBITDA (www.t-mobile.com, 2011). Undoubtedly, this acquisition will help to grow AT&T’s customer base and let’s face it, the shareholders will be very happy but the customers may end up getting the short end of the stick. T-Mobile customers are complaining about being eventually becoming an AT&T customer and some have even vowed to transfer their service to Verizon. This brings up a great point, are customers willing to pay less for service and great coverage, if the customer service leaves more to be desired? Simply being cheaper than its largest competitor, Verizon may not cut it so AT&T may be headed for some big changes, if they are listening to the customer’s feedback.

The acquisition will also affect labor. When the acquisition is complete, AT&T will have a 2:1 presence in most cities in the U.S. Typically, if there is a Verizon store in a neighborhood, rest assure, T-Mobile and AT&T aren’t far away. As a result, this acquisition may cause AT&T to reduce labor as well as...