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3/20/2011
07:08 PM
Eric Zeman
Eric Zeman
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AT&T To Buy T-Mobile For $39 Billion

AT&T announced its intent to purchase smaller rival T-Mobile in a $39 billion deal that will help both compete better with Verizon Wireless.

The deal announced today is a shocker. No one saw it coming. As recently as last week, many at T-Mobile thought they were going to merge with Sprint, not AT&T. To say that this news comes as a surprise is an understatement.

In terms of technology, AT&T and T-Mobile coming together makes a lot more sense than T-Mobile and Sprint. At least they use the same basic GSM wireless technology for their networks and handsets. A Sprint/T-Mobile merger would bring together at least four disparate networking technologies.

AT&T says the deal makes sense because it helps both companies solve certain problems regarding their mobile broadband spectrum (especially of the 4G variety), and should help AT&T accelerate its Long Term Evolution build-out over the next several years.

AT&T will pay for T-Mobile in a cash-and-stock transaction, but the acquisition will likely undergo intense government and anti-trust scrutiny before it is complete. AT&T expects the deal to take about a year to close.

Some of the bullet points AT&T highlights in its press release as the benefits of the deal include: enhances network capacity, output, and quality; adds 46.5 million POPs to AT&T's planned LTE coverage, which will eventually cover 294 million Americans in total (95% of the population); provides LTE to 34 million T-Mobile subscribers who otherwise wouldn't get it; and will create $8 billion in infrastructure investments across the mobile technology landscape over the next seven years.

Let's not forget that the deal also will add together AT&T's approximate 95 million subscribers and T-Mobile's approximate 35 million subscribers, creating one mega-carrier with 130 million customers (nearly half of the entire country's wireless subscribers). Verizon will go from the largest carrier (by only a few million) to a distant second to the combined AT&T/T-Mobile entity. Sprint will be a distant third.

"This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future," said Randall Stephenson, AT&T chairman and CEO, in a prepared statement. "It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people. 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 is of the opinion that everyone will come out a winner in this deal. I am not so sure. By giving these two combined companies such enormous power, it could bring catastrophic changes to the market. For one, handset prices and selection could change for the worse. AT&T is already more controlling with its handsets than many want it to be. T-Mobile has offered consumer-friendly pricing plans for years. AT&T has been aggressively altering its payment schemes of late in moves that consumers aren't so happy about. Handset and plan pricing are one aspect. Another is actually marrying the networks and getting them to work cohesively. (You might remember that the AT&T/CIngular merger didn't go so smoothly.) Another is how the deal will affect networking equipment providers and their relationships with the single largest GSM provider in the U.S.

You can be sure that Verizon Wireless, Sprint, and the many dozens of smaller, regional wireless operators will object to this deal. They'll cry foul about the diminished level of competition. The CTIA Wireless Association (a trade organization that lobbies the government on behalf of the carriers) has yet to release a statement on this proposal. It will be very interesting to see which side the CTIA falls on.

For now, it's business as usual for both carriers. Nothing has changed, and nothing will for some time. (For all you T-Mobile subscribers hoping to get the iPhone, you have a long wait.)


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