AT&T's $39B T-Mobile buyout raises regulatory, competitive and customer service questions

AT&T is getting T-Mobile for considerably less than the nearly $51 billion paid by Deutsche Telekom a decade ago, in 2001

AT&T’s surprise buyout of T-Mobile USA for $39 billion has industry watchers scrambling to figure out what the deal means for subscribers, the U.S. cellular industry and investors.

If it passes muster with U.S. regulators, the combined company will have about 129 million subscribers, 34 million of them from T-Mobile. That compares to Verizon’s 94 million and Sprint Nextel’s 50 million.

MERGER MANIA: Top tech M&A deals of 2011

MORE AT&T NEWS: Bandwidth caps coming to AT&T wireline services

AT&T and T-Mobile have the same underlying cellular network infrastructure, GSM, and both are heading toward the next phase: Long Term Evolution or LTE.  financial specifically says the merger of the two networks will let it deploy LTE more aggressively across the U.S. The deal has been approved by the boards of directors of AT&T and T-Mobile’s German parent, Deutsche Telekom.

The transaction will be mainly cash: about $25 million, with the balance in AT&T stock. T-Mobile USA’s parent, Deutsche Telekom, will reportedly take an 8% ownership stake in AT&T as a result. AT&T is getting T-Mobile for considerably less than the nearly $51 billion paid by Deutsche Telekom a decade ago, in 2001.

But it may not be a done deal. Because of its size, it’s likely to get a close look from U.S. regulators, says Business Insider’s Dan Frommer.  “Or the deal could be blocked completely -- last year was the first year that the FCC did not conclude the U.S. wireless industry was ‘competitive,’” Frommer notes. “The companies expect the deal to close in ‘approximately 12 months’ -- a long time.”

The deal could trigger a realignment in the U.S. cellular market. There’s already speculation that Verizon might bid for Sprint Nextel, both using CDMA cellular technology, and regional carriers could band together to create a low-price, innovative counterweight.

AT&T’s cellular spectrum covers 850 and 1900 MHz for GSM/GRPS/EDGE and for its expanding UMTS/HSPA and increasingly HSPA+ 3G services. T-Mobile uses mainly the 1900 MHz band for its GSM-based services. In late 2008, the company began deploying its UMTS 3G service in the 1700/2100 MHz AWS band. It’s been aggressive in deploying HSPA+ technology, which, the company claims, can boost average download speeds to 21Mbps from 7.2Mbps and create more reliable connections.

Both companies are taking a two-pronged approach to cellular data: upgrading 3G services to support HSPA+, and moving toward LTE. AT&T announced in January that it will begin building out its LTE network in the summer of 2011,  with the initial nationwide phase completed in 2013. Late in 2010, AT&T paid Qualcomm nearly $2 billion for the latter’s 700 MHz spectrum holdings, enough to cover 300 million people nationwide for LTE service, according to the carrier.

In an interview Sunday with Ina Fried of All Things Digital’s Mobilizer blog, AT&T President Ralph De La Vega cited the dovetailing of spectrum holdings as a key reason for the deal. “The first thing is this deal alleviates the impending spectrum exhaust challenges that both companies face,” De La Vega says. “By combining the spectrum holdings that we have, which are complementary, it really helps both companies.”

Secondly, he says, “just like we did with the old AT&T Wireless merger, when we combine both networks what we are going to have is more network capacity and better quality as the density of the network grid increases.”

Finally, De La Vega reiterated the company’s pledge to cover 95% of the U.S. population with LTE services.

Although LTE peak rates are 100Mbps for downloads and 50Mbps for uploads, users initially are likely to see speeds in the 6-10Mbps range. At least in theory, the AT&T LTE strategy now gives T-Mobile subscribers a path to  high-capacity wireless broadband.

Bloggers and other pundits are weighing in, and ahead of the opening of the stock market, much of the commentary is critical.

“One bad company buying another,” is how Business Insider contributor Robert Scoble, a self-confessed AT&T despiser, summed up the news.

“While this is great news for both companies, it's an awful idea for consumers - and I desperately hope the US antitrust authorities rake this merger over the coals,” declared Sascha Segan, at PC Magazine.  Segan predicts T-Mobile’s lower-priced service plans will evaporate,  dismisses AT&T’s claims that past mergers have led to lower prices in the cellular industry over the past decade, and U.S. consumers will have fewer phones to choose from.

“The merged carrier will not have T-Mobile's friendliness, nimbleness, or level of customer service,” Segan writes. “Just like in the horrifying Sprint-Nextel mess or during the long, slow, grinding AT&T/Cingular merger, the merged carrier will sink to the minimum customer service level of its parts.”

Others are focusing on the alleged decrease in competition. “[The] American [wireless] competitive landscape looks a lot like duopoly because two major companies now control the vast majority of the market, creating an impenetrable barrier to entry for other players,” writes Christian Zibreg, at Bright Side of the News.  “On the upside, consumers may benefit from a single business entity operating a huge GSM network.”

John Cox covers wireless networking and mobile computing for “Network World.”

Twitter: http://twitter.com/johnwcoxnwwEmail: john_cox@nww.comBlog RSS feed: http://www.networkworld.com/community/blog/2989/feed

Read more about data center in Network World's Data Center section.

Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection

Tags business issuesMergers / acquisitionsNetworkingwirelessAT&T-TMobile acquisitionT-Mobile USAmergersLAN & WANcorporate issuesat&t3G & 4Gacquisitionssprint nextelWiMAX & LTEdeutsche telekom

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

John Cox

Network World
Show Comments

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Ben Ramsden

Sharp PN-40TC1 Huddle Board

Brainstorming, innovation, problem solving, and negotiation have all become much more productive and valuable if people can easily collaborate in real time with minimal friction.

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

George Khoury

Sharp PN-40TC1 Huddle Board

The biggest perks for me would be that it comes with easy to use and comprehensive programs that make the collaboration process a whole lot more intuitive and organic

David Coyle

Brother PocketJet PJ-773 A4 Portable Thermal Printer

I rate the printer as a 5 out of 5 stars as it has been able to fit seamlessly into my busy and mobile lifestyle.

Kurt Hegetschweiler

Brother PocketJet PJ-773 A4 Portable Thermal Printer

It’s perfect for mobile workers. Just take it out — it’s small enough to sit anywhere — turn it on, load a sheet of paper, and start printing.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?