United States telecoms giant AT&T is buying T-Mobile USA from Deutsche Telekom AG in a cash-and-stock deal valued at $39 billion.
The deal would reduce the number of US wireless carriers with national coverage from four to three, and is sure to face close regulatory scrutiny. It also removes a potential partner for Sprint Nextel, the struggling No 3 carrier which had been in talks to combine with T-Mobile USA, according to Wall Street Journal reports.
AT&T is now America's second-largest wireless carrier and T-Mobile USA is the fourth largest. The acquisition would give AT&T 129 million subscribers, vaulting it past Verizon Wireless's 102 million. The combined company would serve about 43 per cent of US mobiles.
For T-Mobile USA's 33.7 million subscribers, the news doesn't immediately change anything. Because of the long regulatory process, AT&T expects the acquisition to take a year to close. But if it closes, T-Mobile USA customers would get access to AT&T's phone line-up, including the iPhone.
The effect of reduced competition in the mobile phone industry is harder to fathom. Public interest group Public Knowledge said that eliminating one of the four national phone carriers would be “unthinkable”.
“We know the results of arrangements like this - higher prices, fewer choices, less innovation,” said Public Knowledge president Gigi Sohn.
T-Mobile has relatively cheap service plans compared with AT&T, particularly when comparing the kind that do not come with a two-year contract. AT&T chief Randall Stephenson said one of the goals of the acquisition would be to move T-Mobile customers to smart phones, which have higher monthly fees. AT&T “will look hard” at keeping T-Mobile's no-contract plans, he said.
AT&T's general counsel Wayne Watts said the mobile phone business is “an incredibly competitive market”, with five or more carriers in most major cities. He pointed out that prices have declined in the past decade, even as the industry has consolidated. In the most recent mega-deal, Verizon Wireless bought No 5 carrier Alltel for $5.9 billion in 2009.
Stifel Nicolaus analyst Rebecca Arbogast said the deal will face a tough review by the Federal Communications Commission and the Justice Department. She expects them to look market-by-market at whether the deal will harm competition. Even if regulators approve the acquisition, she added, they are likely to require AT&T to sell off parts of its business or T-Mobile's business. Verizon had to sell off substantial service areas to get clearance for the Alltel acquisition.
To mollify regulators, AT&T said it would spend an additional $8 billion to expand ultrafast wireless broadband into rural areas. Instead of covering about 80 per cent of the US population with its so-called Long Term Evolution, or LTE network, AT&T's new goal would be 95 per cent, it said. That means blanketing an additional area 4.5 times the size of Texas. The network is scheduled to go live in a few areas this summer, but the full build-out will take years.