Monday, March 21, 2011

AT&T Buys T-Mobile For $39 Billion

No one saw this coming. Yesterday, AT&T, the second largest wireless provider in the USA, announced that it will acquire T-Mobile USA from parent company Deutsche Telekom in a cash and stock deal worth approximately $39 billion which will make it the largest carrier in the nation. The agreement has been approved by the Boards of Directors of both companies then the Department of Justice and the Federal Communications Commission. This deal should be finalized in about a year.
The transaction, one of the largest since the onset of the financial crisis, is expected to start a fierce battle in Washington as regulators scrutinize the effect of the deal on competition and consumers. The deal would leave just three major cellular companies in the country: AT&T, Verizon and the much smaller Sprint Nextel. Some critics denounced the merger within hours of its announcement, saying it would most likely lead to higher prices. T-Mobile had offered some of the lowest rates in the country, keeping pressure on competitors. While AT&T is expected to honor current contracts, T-Mobile customers may have to pay higher rates once those contracts expire. Still, AT&T pointed on Sunday to a recent report from the federal Government Accountability Office that said cellular subscription costs fell 50 percent from 1999 and 2009, a period in which the industry has consolidated. “Consumers have borne the brunt of the increasingly concentrated market for mobile phone service,” Senator Herb Kohl, the Wisconsin Democrat who heads the subcommittee on antitrust, competition policy and consumers rights, said in a statement. “The explosion of cellphone usage — especially smartphones — makes competition in this market more important than ever as a check on prices, consumer choice and service.” AT&T customers, though, could benefit in one notable area: service. Both AT&T and T-Mobile operate on the same technology, known as GSM, so the combination should provide better coverage. That has been a sore point for AT&T, which has been ridiculed over dropped calls and slow data services, especially on the Apple iPhone. “The carriers’ network technology fits nicely together so AT&T could redeploy some of T-Mobile’s spectrum in short order, helping relieve some of the pressures on its network,” said Craig Moffett, an analyst with Sanford C. Bernstein. The acquisition would give AT&T additional leverage against its main rival, Verizon. The newly combined company, bringing together AT&T’s 95.5 million wireless subscribers with T-Mobile’s 33.7 million customers, would account for roughly 42 percent of all wireless subscribers in the United States. Verizon has around 31 percent, said Charles Golvin, a telecommunications analyst at Forrester Research. T-Mobile customers would have the option to buy an iPhone, helping AT&T combat the migration of the popular device to Verizon....
The discussions with AT&T, which started in earnest in December 2010, heated up in recent weeks, amid renewed speculation about a Sprint and T-Mobile deal, according to people involved in the transaction. To keep word of the deal from leaking, the AT&T team devised a complicated list of code names known as “Project Auto.” AT&T was called “Tesla”; Deutsche Telekom was “Daimler” and T-Mobile was “Mercury.” When asked why T-Mobile was named Mercury — not exactly known for high-performance vehicles — Randall Stephenson, the chief executive of AT&T, chuckled: “We needed an ‘M.’ Nothing more.” Under the terms of the deal, AT&T will pay $25 billion in cash and the rest in stock. Deutsche Telekom will gain an 8 percent stake in AT&T and a seat on the telecom giant’s board.
Sprint, with roughly 50 million subscribers, would be the odd-man out. The company says the industry would be "dominated overwhelmingly" by two companies that control almost 80% of the U.S. wireless contract market. Sprint says both AT&T and Verizon also own the ground infrastructure that other carriers rely on to deliver their wireless traffic around the country. The company plans on raising those concerns with the FCC and Justice Department.

This afternoon, T-Mobile CEO Philipp Humm told employees in a letter, "the sale of T-Mobile USA to AT&T is the best possible solution for our business and for our customers. The merger will ensure the deployment of a robust 4G network to 95% of the U.S. population, something neither company could achieve on its own. Also, because of our compatible networks and spectrum, the customers of T-Mobile USA and AT&T will experience improved voice and data service almost immediately after the networks are integrated."

Sidebar: T-Mobile will not offer the iPhone. Well, not until the companies are merged, that is.
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