AT&T Inc said on Sunday it will buy T-Mobile USA from Deutsche Telekom AG in a cash-and-stock deal valued at US$39 billion that would make it the largest cellphone company in the US.
The deal would reduce the number of US wireless carriers with national coverage from four to three and it is sure to face close regulatory scrutiny. It also removes a potential partner for Sprint Nextel Corp, 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 the US’ 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’ 102 million. The combined company would serve about 43 percent of US cellphones.
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. However, when and 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 cellphone industry is harder to fathom. Public interest group Public Knowledge said 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,” Public Knowledge president Gigi Sohn said in a statement.
AT&T’s general counsel, Wayne Watts, said the cellphone 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.
Stifel Nicolaus analyst Rebecca Arbogast said the deal would face a tough review by the US Federal Communications Commission (FCC) and the US Department of Justice. 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 in a statement on Sunday that it would spend an additional US$8 billion to expand ultra-fast wireless broadband into rural areas. Instead of covering about 80 percent of the US population with its so-called Long Term Evolution, or LTE network, AT&T’s new goal would be 95 percent, 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.
The offer would help the FCC and US President Barack Obama’s administration meet their stated goals of bringing high-speed Internet access to all Americans. They see wireless networks as critical to meeting that goal — particularly in rural areas where it does not make economic sense to build landline networks.
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