Deutsche Telekom can’t afford to wait for a decision on T-Mobile USA

The Justice Department’s effort to block AT&T’s acquisition of T-Mobile USA has sparked a flurry of stories claiming the smaller carrier will be living on borrowed time if the deal isn’t approved. CNNMoney claims that T-Mobile without AT&T “is a wireless white elephant,” StreetInsider.com says failure to close the acquisition “might mean auf weidersehen” for Deutsche Telekom’s U.S. business, and longtime analyst Roger Entner predicts that T-Mobile “will be left to a slow death” unless the deal goes through. Those autopsies are premature, however. T-Mobile USA is still a viable operator with a chance to compete with the big boys on its own. That’s why it’s crucial that the carrier move forward even as its fate is being decided in the Beltway.

T-Mobile’s most obvious vulnerability, of course, is its lack of a true 4G network. But a RootMetrics study of mobile data speeds earlier this year found that T-Mobile’s HSPA+ far outperformed AT&T’s 3G network and matched Sprint’s WiMAX service. And the major 4G network operators have yet to build out their portfolios of supporting devices, giving T-Mobile a year or two before its network becomes a real liability. If federal regulators manage to block the acquisition, T-Mobile will receive $3 billion in cash plus billions more in spectrum, thanks to the breakup fee AT&T will have to pay. Those assets could help T-Mobile begin work on the LTE network it will need in the next few years.

Critics also say T-Mobile exists in a kind of no-man’s-land in the mobile market. It can’t compete on price with no-frills service providers, and its nationwide network isn’t as solid as Verizon’s or even AT&T’s. That theory was supported earlier this year when T-Mobile was bleeding subscribers, but those losses slowed substantially during the most recent quarter, the carrier said last month. A closer look reveals even more encouraging figures: Monthly data ARPU (average revenue per user) increased from $11.60 to $13.60 over the year-ago period, and the company added more than 250,000 machine-to-machine connections. Those trends look to continue as data consumption ramps up and the Internet of Things gets legs. T-Mobile is still a profitable operator, posting a net income of $207 million in the latest quarter.

So how can Deutsche Telekom help shore up its U.S. business if AT&T’s acquisition is blocked? Most importantly, it should do everything in its power to expand its relationship with Apple to bring the iPhone to T-Mobile USA. That move seems highly plausible in light of recent reports that Sprint will soon carry the iPhone. It must invest heavily in its network to fill in the network holes that lead to dropped calls and delayed text messages. It must follow AT&T’s lead and use HSPA+ as an evolutionary step toward LTE, and it must develop and disclose a build-out plan and time frame to ease the concerns of investors and customers. And it must improve its marketing strategy, positioning itself as an affordable operator of a high-speed mobile network. (Also, it would help if it did away with its policy of throttling network speeds for high-end data users, which gives Sprint an opportunity to differentiate itself as a truly “unlimited” service provider.)

I still think AT&T and T-Mobile will offer enough concessions to ultimately gain approval. But if the deal were to fail, potential suitors such as Google, Sprint or a consortium of cable companies could swoop in and pick up T-Mobile. As the CNNMoney piece pointed out, though, T-Mobile “has largely sat on its hands” since the AT&T deal was announced rather than aggressively upgrading its network and building out its device portfolio. Mobile is a fast-moving space where handsets and networks are constantly evolving. T-Mobile could still become a major player if the deal fails, but if Deutsche Telekom doesn’t get more aggressive immediately — and if the AT&T acquisition is nixed — it will suddenly find itself left behind.

Question of the week

Can T-Mobile USA survive on its own?

Today in Mobile

An unbelievable August for the mobile industry was capped this morning with news that the U.S. Department of Justice has filed an anti-trust suit to block AT&T’s acquisition of T-Mobile USA. AT&T quickly responded by saying it will fight the suit tooth and nail, and T-Mobile noted that the deal would bring 5,000 call center jobs back to the U.S. There are a lot of dollars at stake and plenty of politics at play, so it’s too early to stick a fork in the acquisition. And with a massive $6 billion break-up fee looming, you can be sure that AT&T is going to fight with everything it has.

Today in Cloud

Amazon rolled out a new region for their public cloud computing service yesterday; physically located on the west coast of the United States and featuring additional checks to ensure that only U.S. citizens may gain access. The new GovCloud (US) Region is intended to meet the needs of state and federal government agencies, and it was interesting to note Jeff Barr’s claim that little additional effort was required to meet government’s requirements; “Other than the restriction to US persons and the requirement that EC2 instances are launched within a VPC, we didn’t make any other changes to our usual operational systems or practices. In other words, the security profile of the existing Regions was already up to the task of protecting important processing and data. In effect, we simply put a gateway at the door — ‘Please show your passport or green card before entering.'” Amazon is keen to explore offering similar services to other governments, and this relatively lightweight approach of layering logical regions on top of Amazon’s existing physical infrastructure may offer a cost-effective means to appear to meet the niche requirements of government… and a whole host of regulated industries. Which will be next? AWS GovCloud (UK), or AWS FinanceCloud ? Companies like IBM, which have explicitly set out to build and deploy different clouds for different verticals, must be watching closely.

Today in Mobile

My colleague Stacey Higginbotham offers up this insightful post this morning that sizes up the FCC’s review of AT&T’s proposed takeover of T-Mobile USA. In a move that surely is bad news for AT&T executives, the FCC said Monday night that it would combine that review with its audit of AT&T’s purchase of spectrum from Qualcomm. That decision indicates that the FCC truly is concerned about the concentration of power that would occur if both purchases are approved. So maybe the AT&T/T-Mo tie-up isn’t the done deal some have thought it was.

Today in Cloud

Business Insider’s Pascal-Emmanuel Gobry takes a rather dim view of this story in yesterday’s La Tribune, sarcastically concluding that “We don’t see how anything can go wrong with this. Stimulus funds, consortia, huge corporations going out of their core competencies, French government and union meddling and big buzzwords like cloud computing.” The French government certainly does appear more willing than most to put the state’s muscle behind big projects, especially when it feels that the country’s cultural values are threatened by anglophone (mostly American, these days) dominance over markets. In this case, though, the idea may have some merit. A national need, combined with perfectly respectable competencies inside some of the country’s biggest companies? Gobry is certainly right that plenty could go wrong, but this project deserves watching as it takes shape.

Today in Cleantech

It’s finally here! Yesterday, California Public Utility Commission issued what it expects to be its official rules for managing the security and privacy of utility customer energy data when it comes to smart meters, home energy management devices and every other potential gadget and business case that can be attached to the smart grid. We’ve covered many of the key issues surrounding this groundbreaking ruling, including the CPUC’s interesting definitions of just how customers’ data should be treated, and how utilities and their business partners should be held liable for protecting its privacy and security. The ruling also requires California’s big three utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric — to roll out all the smart grid/home energy technology pilots they’ve been putting off for the past few years, which should make for some interesting smart grid projects to come in the months ahead. I’ll be keeping a close eye on developments on the smart grid front here in California, but not from this site — as of today, I’ll be leaving my post as GigaOM Pro’s Green IT curator. It’s been a pleasure writing for you all, and I look forward to staying in touch with you amidst my future endeavors in the green technology field. Cheers!

Today in Cloud

London-based Software as a Service provider Huddle has secured a contract to provide their cloud-based document collaboration solution to the UK Government. The Financial Times notes that “the company was chosen… over much larger IT companies, such as Microsoft and Google, partly because its servers are located only in the UK and could theoretically be easier to protect physically from any outside attack.” Importantly, the deal sees Huddle formally accredited to handle confidential material classified as “Restricted,” challenging the widely held belief that cloud solutions are not sufficiently secure.

Today in Cloud

A Microsoft executive’s answer to a question during the London launch of Office 365 last month has caused a bit of a storm. As Zack Whittaker reported for ZDNet, Microsoft “admitted” that the U.S. company might have to surrender European customer data if required to do so by U.S. law enforcement agencies invoking the USA PATRIOT Act. The problem, which is actually reasonably well known, is that the PATRIOT Act trumps the Safe Harbor agreements in place between the United States and Europe, and that normally provide a mechanism for U.S. companies to demonstrate their compliance with Europe’s tough data privacy laws. Jennifer Baker reports for Computerworld that the European Parliament is now getting involved, concerned that European data may be at risk. It is certainly true that the extreme powers of the PATRIOT Act could be used to sweep aside the Safe Harbor principles, and customers should be aware that it’s legally permissible. It’s also quite unlikely — unless you’re storing data in which U.S. law enforcement might have a legitimate anti-terror interest. Open and informed discussion of the issues is to be welcomed. Blind panic that — “suddenly” — the FBI will start reading European email? Less helpful.

Today in Cleantech

If anyone was wondering what the Obama Administration wanted to see from utilities and companies building the country’s smart grid, here’s a document for you to read. The White House released its “Policy Framework for the 21st Century Grid” (PDF) this morning, laying out just what the President would like to do to boost grid modernization in the future — besides directing another $4.5 billion in federal stimulus grants toward the industry, of course. With Congress now deadlocked against any more stimulus, what can the President do to boost the industry further? Well, for one, the U.S. Department of Agriculture has some rural utility funding authority, and plans to make up to $250 million in loans available to rural grid improvements. Beyond that, there’s a new pledge to speed up permitting for transmission and clean energy projects on the part of the Departments of Energy and Interior, a new federal-industry best practices coordination effort to have its own Web site (www.smartgrid.gov), and a new non-profit program called Grid 21 to try to get consumers more interested in energy saving. For not being able to spend a lot of money, I suppose that’s pretty good.

California’s energy privacy rules: The battle heats up

Last month, the California Public Utility Commission published a proposed ruling on how utility customers’ energy data must be protected. The first deadline for interested parties to comment on the state’s new proposed rules has come, and, there’s still plenty of confusion over the fine print. A common theme is also emerging: The CPUC’s rules will need to change to avoid stifling the smart grid–home energy marketplace.