Carriers

AT&T buys T-Mobile USA for $39 billion

March 20, 2011 | by Andrew Kameka

AT&T, T-Mobile

att-4g

T-Mobile USA fans, meet your new AT&T overlords. AT&T Wireless has just issued a press release stating that it has agreed to purchase the American arm of Deutsche Telekom. According to the report, AT&T has agreed to pay Deutsche Telekom $39 billion in stock and cash to take over T-Mobile USA.

The deal still needs to be finalized and could face opposition from US regulators over concerns about competition, but AT&T and Deutsche Telekom are moving forward with plans to transfer ownership of T-Mobile USA. The Board of Directors from each company has approved the deal, which gives Deutsche Telekom an 8 percent interest in AT&T and a cash payment of $25 billion.

An acquisition of T-Mobile has long been rumored because parent company Deutsche Telekom was not happy with T-Mobile’s falling subscriber numbers. As recent as last month, the fourth-placed network posted another quarter of poor sales that led us to wonder how customers would fix T-Mobile. While previous rumors suggested that a merger with third-place Sprint might be in the cards, Telekom ultimately decided to sell to AT&T, which Stephenson notes has “complementary network technologies.” (ATT and T-Mobile both use GSM while Sprint uses CDMA technology.)

AT&T Chairman Randall Stephenson calls this move a “major commitment to strengthen and expand” the infrastructure of the United States communications industry. Stephenson says that AT&T will use new spectrum and network capabilities provided by its ownership of T-Mobile to form a stronger network. More information will be shared with the media during a conference call tomorrow morning.

My initial reaction to this news is that it’s surprising but makes more sense than a Sprint/T-Mobile merger. The similar technologies between AT&T and T-Mobile will lead the two major GSM networks to form one mega company. The US government could block the deal, but are unlikely – in my opinion – because of two key reasons.

  • Competition still exists. While this will make things tougher on Sprint, AT&T still will not have enough market share to form a monopoly. Sprint, Verizon, and many regional carriers in key markets provide enough competition to shield AT&T from the consumer protection that threatens these types of deals.
  • Faster broadband rollout and “better” service. The US government has made expansion of wireless and broadband service into rural areas and underserved communities an important objective. AT&T points out that this gives them a chance to merge assets and use new spectrum for better call quality and data services. AT&T will argue that this move gives more people access to better wireless service.

We’ll have more to say once AT&T discusses the acquisition tomorrow. What do you think of this move?

UPDATE: Here’s T-Mobile’s answer to common questions about how the deal affects customers.