Summer 2011 Merger Overview
The summer months are usually uneventful in tech news, but the summer of 2011 has shaped up to be a major inflection point in the technology world. Several high profile mergers that are either waiting for approval or in fantasy stages will reshape the entire sector.
Microsoft and Skype – The world’s largest PC-to-PC and PC-to-phone Voice over IP vendor Skype will merge with the world’s largest software company and leading game console maker Microsoft. This will have a huge impact on the voice and video over IP industry and may even make Microsoft a mobile superpower (or may not).
Even though the Microsoft/Skype merger is approved, it isn’t without peril. There are some strategic conflicts that must be worked out. Skype’s decision to start using Google’s VP8 video compression codec will make Microsoft very vulnerable to lawsuits since VP8 copies a lot of technology in the dominant H.264 standard. Nobody is going to sue a profitless company, but Microsoft will be extremely vulnerable to VP8 lawsuits. The merger won’t be complete until October (via Ed Bott) but once it is, I wouldn’t be surprised if Microsoft ended the VP8 plans for Skype. Microsoft declined to comment on this issue.
AT&T and T-Mobile – This merger will consolidate a wireless market from 4 large cellular carriers to 3,but the merger is pending approval. Sprint opposes the T-Mobile merger even though they are partnering with LightSquared. Sprint is also in the process of absorbing Clearwire by depressing Clearwire stock through spectrum hording and acting hypocritically.
The AT&T merger with T-Mobile will be critical to the US National Broadband Plan. Because the merger will make rural LTE more feasible, it will help bring LTE 4G broadband to rural America. Opponents of the merger argue that if AT&T is willing to spend 10 times more on T-Mobile than rural LTE, they should just build the rural LTE network without the merger. But that argument is irrational because rural areas lack sufficient population density to justify even more diluted market share. We have to ignore basic economics if we accept the argument that if AT&T should just forget the $39 billion T-Mobile and spend $3.8 billion on rural LTE without the benefits of a T-Mobile merger. A willingness to buy a valuable company for $39 billion doesn’t translate to spending $3.8 billion without a way to earn a return on investment.
Google and Motorola – Google surprised everyone this week by announcing the acquisition of Motorola’s Mobility Division for $12.5 billion. Some hale this as a triumphant coup d’état over Apple and Microsoft while others see it as desperation. With Google’s willingness to pay a $2.5 billion penalty if the merger isn’t approved and a willingness to absorb a money losing hardware business, it does sounds a bit more like desperation.
Sprint, LightSquared, and ClearWire – This 15 year partnership and the absorption of ClearWire will solidify a third major wireless carrier if and when the AT&T/T-Mobile merger goes through. Sprint is currently in talks to buyout ClearWire from other invested companies.
Jean-Louis Gassée (a former Apple executive) is pleading with Apple to buy wireless carrier Sprint. Did Apple made a huge mistake when they took back Steve Jobs and replaced Mr. Gassée? Probably not, since it isn’t clear why Apple would want to get into such a costly capital intensive business when Apple gets the profits while carriers get the blame.
Mr. Gassée isn’t the only one fantasizing. Chunka Mui believes that Google should go further than mobile hardware and become a wireless carrier by acquiring Sprint. I think that’s a wonderful idea! Google should become a wireless carrier and also come through on their promise to become a gigabit fiber broadband provider and forget naysayers who say it isn’t practical. In fact, Google ought to use Free Press and Tim Wu as Net Neutrality advisers and run a dumb pipe on their wireless and fiber networks. They should also deploy the broadband network at their own expense and peer with other video services like Netflix for free (forget the fair division of labor). Google should run a pure dumb network and not succumb to greed services like voice as a convenient way to pay for the infrastructure. Google should ignore the capex costs of being a telecom and increase their present capital expenditures 20-fold for the sake of “doing good” and not quibble over sunken costs.
Lastly, Nicholas Carlson wants to see Facebook acquire WebOS technology from HP now that HP is getting out of the Palm tablet and PC business. If Facebook is really interested in Palm’s WebOS, a blog reader commented that the merged company should be called “FacePalm.” In this analyst’s opinion, that name would be fitting if such a acquisition occurred.