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In a move that will bring two major wireless carriers in the US together, AT&T announced it will acquire T-Mobile for a whopping $39 billion. Currently, AT&T is the second largest carrier and T-Mobile the fourth largest. The combined operations will relegate Verizon to second place, with Sprint a distant third.
The deal would give AT&T extra spectrum, help it expand its LTE deployment and potentially increase its network's bandwidth.
The deal definitely signals a bigger choice of phones for customers of the combined operation, but fewer pricing plans to choose from. However the bigger question is whether it could mean higher prices for subscribers.
Randall Stephenson, AT&T Chairman and CEO, noted in a press release the importance of this move, explaining that "mobile broadband networks drive economic opportunity everywhere, and they enable the expanding high-tech ecosystem that includes device makers, cloud and content providers, app developers, customers, and more. During the past few years, America's high-tech industry has delivered innovation at unprecedented speed, and this combination will accelerate its continued growth."
AT&T also pointed out that the LTE rollout would help achieve the Federal Communications Commission (FCC) and President Obama's goals to connect "every part of America to the digital age." The merger - reported as one of the largest since the onset of the financial crisis could bring AT&T 95.5 million wireless subscribers with T-Mobile's 37.7 million customers.
As part of the deal, Deutsche Telekom will get an 8% stake in AT&T and a representative of the company will join the AT&T board of directors. AT&T will pay $25 billion in cash and $14 billion through stock. The company will finance the cash portion with new debt and existing cash on the balance sheet.
The deal is expected to close in 12 months. It had previously been reported that Deutsche Telekom was considering selling the unit to Sprint prior to the deal.
However, the news isn't all rosy, cautions Forrester research analyst Charles Golvin. He noted that "It's bad news for cable operators, whose incipient mobility products will suffer in comparison to what AT&T and Verizon can offer."
This deal is by no means a foregone conclusion. In the website set up to sell the deal to shareholders, regulators and the outside world, AT&T goes to great lengths to point out how great it will be for everyone, and how there's still loads of competition.
But the combined operation will have around 130 million subscribers. Yes, there's strong competition from Verizon with around 100 million, but third placed Sprint has 50 million. In distant fourth place is TracFone, with 17.7 million. While this is a subsidiary of Americal Movil, owned by the world's richest man, it seems to specialize in entry-level, PAYG feature-phones and thus provides no competition in the crucial smartphone market. All the remaining competitors have single figure millions of subscribers.
So, despite AT&T's protestations, there is a real risk to competition in the US mobile market with this proposed acquisition. The combined operation would effectively be left with one strong and one weak competitor, and regulators may well conclude this isn't enough. Then again, that maybe nothing a few big lunches can't sort out.
