AT&T's takeover of T-Mobile creates largest U.S. carrier

Deal will face tough federal scrutiny

AT&T will buy T-Mobile USA for $US39 billion in cash and stock, easily making AT&T the nation's largest wireless carrier, ahead of top-ranked competitor Verizon Wireless and reducing the number of major national wireless carriers from four to three.

Consumer groups are sure to object because of concerns over market consolidation and less competition, but some analysts said the deal makes sense and won't lead to higher prices. Rumors circulated last year that T-Mobile was expected to be sold, possibly to third-place Sprint, so AT&T's emergence was somewhat of a surprise.

The deal, announced on Sunday by both AT&T and T-Mobile's parent Deutsche Telekom, has been approved by the boards of both companies. Under the deal, Deutsche Telekom would receive an eight per cent equity stake in AT&T and a board seat.

The transaction is expected to close in 12 months, the companies said. It is subject to federal regulatory approval, where it will undoubtedly receive close scrutiny, given its size and impact on the competitive landscape. A conference call on the agreement is set for 8 a.m. EDT Monday.

AT&T said the deal will add T-Mobile's 34 million customers to AT&T's 95.5 million total subscriber base (at the end of 2010), enabling a quicker expansion of 4G LTE wireless networks to the entire subscriber group of about 130 million. By comparison, Verizon had 94.1 million subscribers at at the end of 2010, although Verizon and AT&T count them somewhat differently.

Some analysts lauded the deal, even though consumer groups are expected to question having more subscribers under the control of a single carrier.

"Bigger is better in a commodity game," said Phillip Redman, an analyst at Gartner who follows the wireless carriers. "Four providers were too many. This may help [third-place] Sprint as it becomes the standalone low-cost provider, and it makes more sense than a Sprint-T-Mobile deal."

Redman said the Federal Trade Commission and Federal Communications Commission will both "take a hard, long look at it, but in the end it will be approved." With three major providers -- Verizon, AT&T and Sprint --Redman added, "I think there is plenty of competition...This is the last of the big mergers" in the wireless industry.

The companies sought to deflect concerns about reduced competition with the combination of two large carriers, noting in a statement: "The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal. The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless proviers in their local market ...The competitiveness of the market has directly benefited consumers."

Shortly after the takeover was announced, consumer rights group Free Press issued a statement condemning it. "Don't believe the hype: There is nothing about having less competition that will benefit wireless consumers," said Free Press research director S. Derek Turner. "And if regulators approve this deal, they will further cement duopoly control over the wireless market by AT&T and Verizon."

Turner noted that the top four companies already control 90 per cent of the wireless business. If two of the four merge, that means "nothing but higher prices and fewer choices, as the newly engorged AT&T and Verizon exert even more control over the wireless Internet."

Jeffrey Kagan, an independent analyst, said he didn't think the AT&T takeover would have a negative effect on pricing, since there will still be three major players in the market. "Ultimately, [the merger] will be approved," he said. Because AT&T will invest more in network expansion because of the takeover, Kagan said both customers and investors will be "happier."

He noted continued problems in keeping up with data demands of the iPhone when AT&T was the device's exclusive wireless carrier, creating an image that AT&T didn't want.

Jack Gold, an analyst at J. Gold Associates, said he was unsure whether regulators will automatically go along with the merger because it significantly limits competition.

"It is highly likely that data rates ... will increase," he said. "The bottom line is that this is probably good for current customers of AT&T and T-Mobile as it will ultimately result in better network coverage, but in limiting the competition, it will also probably result in higher prices."

AT&T Chairman Randall Stephenson said the transaction represents "a major commitment to strengthen and expand critical infrastructure for our nation's future." AT&T will increase its infrastructure investment by more than $8 billion over seven years, he said, and will be able to extend its plan for LTE coverage to an added 46.5 million Americans across 95 per cent of the U.S.

With the acquisition, AT&T will immediately gain cell sites that would have taken on average five years to build without the transaction, the carrier said. It said its mobile data traffic grew by 8,000 per cent over the past four years, and will be eight to 10 times greater in 2015 than it was in 2010.

Both companies use a GSM-based HSPA network, although T-Mobile announced HSPA+ speeds in January that would technically make it faster than AT&T. AT&T is moving its subscribers to LTE in the next two years, expecting the first rollouts later in 2011.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His e-mail address is mhamblen@computerworld.com.

Read more about mobile and wireless in Computerworld's Mobile and Wireless Topic Center.

Tags Gov't Legislation/RegulationIT industryMobile and WirelesstelecommunicationregulationPhonesT-Mobile USAmobileVerizon WirelessIT Governance and Complianceconsumer electronicsat&tsmartphonesdeutsche telekomgovernment

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Matt Hamblen

Computerworld (US)

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