NSA Cloud Could Give AT&T Cover Move Into Europe Comes With Significant Risks
Out of adversity comes opportunity. That may be something AT&T T +0.11% should remember.
Outcry in Europe over spying by the National Security Agency has prompted officials in the region to threaten intense scrutiny of any AT&T deal to acquire a major wireless carrier there. That could frustrate AT&T's apparent aim of bidding for the remaining piece of Vodafone Group VOD.LN +3.56% after the deal to sell its stake in Verizon Wireless to Verizon Communications VZ -0.04% closes in the first quarter of 2014.
If AT&T is forced to back away because of a chill political wind, that might not be such a bad thing. A move to Europe carries significant risks, in large part because of the region's stifling regulatory climate and fiercely competitive landscape. Those factors could prevent AT&T from generating a sufficient return on investments in wireless networks there, a likely component of its European strategy.
Having another big deal scuttled by regulators after the Justice Department blocked its bid for T-Mobile US TMUS +0.58% in 2011 also could be disastrous for AT&T. Blaming the NSA blowup could be a convenient way to avoid even a chance of that.
Of course, it may already be too late to turn back, particularly after AT&T has spent so much effort promoting the idea to investors. It arguably needs to do a deal to help it combat mounting competition in the U.S. wireless market.
And AT&T already has publicly ruled out a domestic merger, citing the difficult U.S. regulatory climate. The company may be counting on the spying scandal quickly fading from the headlines and on being able to appease regulators by agreeing to wall off its European business in some way.
Still, it might be better for investors if AT&T uses the government's misstep as a chance to avoid one of its own.