Blog Post

AT&T to Buy T-Mobile for $39 Billion

Updated with statement from Sprint: AT&T (s t) said it will buy T-Mobile USA from Deutsche Telekom AG, in a deal valued at $39 billion.The deal, announced Sunday, would involve cash and stock and result in the combination of the nation’s second- and fourth-largest wireless operators. The deal points to the game of spectrum accumulation as mobile operators prepare for a rapid increase in the demand for mobile data, and also will place Sprint (s S) between a rock and hard place, while upping the competition between AT&T and Verizon Wireless (s vz).

The deal combines AT&T’s 95.5 million subscribers with T-Mobile’s 34 million subscribers to create the nation’s largest mobile operator. Both companies are using the GSM-based HSPA network, although T-Mobile has a faster HSPA network, while AT&T plans to move its subscribers to a Long Term Evolution network in the next two years. Thus the deal provides a path to LTE for T-Mobile’s subscribers, since T-Mobile had planned on boosting its speeds through upgrades to its HSPA network.

Partly as a sop to regulatory concerns over competition, AT&T said in its release that this deal extends its plans for LTE coverage to an additional 46.5 million Americans, to cover 95 percent of the U.S. AT&T also assures the public in its release that the deal will result in more than $8 billion in incremental infrastructure spend by a U.S. company over seven years.

AT&T points out that the combination of T-Mobile USA and AT&T “provides fast, efficient and certain solution to impending spectrum exhaust challenges facing AT&T and T-Mobile USA in key markets due to explosive demand for mobile broadband.” What we’re seeing here is AT&T using what some call a manufactured spectrum crisis — which the FCC has built to a fever pitch in the last two years — in order to shove this deal through the regulatory process. This is a deal that will ultimately be worse for consumers by reducing the number of nationwide wireless providers and consolidating much of the high-quality spectrum in the hands of the nation’s two largest carriers.

This is no small issue, especially given the wireless competition report released last May by the FCC. (Another one is due this coming May, which make interesting reading in light of the proposed merger). That report determined that while the country did have multiple nationwide carriers, the top two had access to concentrated spectrum resources that were worrying. We even questioned whether the FCC would approve AT&T’s bid to buy Qualcomm’s spectrum that it used for its mobile television service.

To address these fears for anticompetitive behavior as a result of the deal, AT&T notes in its release that in the U.S., “a large majority of consumers can choose from five or more wireless providers in their local market. For example, in 18 of the top 20 U.S. local markets, there are five or more providers.” The release also points out that the overall average price (adjusted for inflation) for wireless services declined 50 percent from 1999 to 2009, during a period which saw five major wireless mergers.

AT&T and Verizon are both on a mission to consolidate their airwaves and ensure they have the bandwidth to deliver the data-rich services consumers are demanding. For now, access to those airwaves through the acquisition of T-Mobile and Qualcomm’s (s qcom) spectrum will be pitched as a necessary move to deliver the capacity consumers are demanding today, but this will also serve to give AT&T more power, as fewer carriers will have the spectrum assets needed to deliver next-generation networks.

AT&T says its mobile data traffic grew 8,000 percent over the past four years. By 2015, that traffic is expected to be eight to 10 times what it was in 2010. However, other operators, including T-Mobile, have less inflated forecasts, believing that measuring the last four years and extrapolating that growth out for the next ten is unreasonable. Additionally, the use of femtocells and Wi-Fi for offloading traffic off the cellular networks will help with mitigating the demand on cellular networks.

So the questions now are whether or not the Department of Justice will approve this deal, and if AT&T is buying T-Mobile because it thinks it can, or because it wants to prevent Sprint from buying up the company and perhaps becoming a stronger rival. By making this offer, even if the DoJ stops the deal, AT&T has set a price for T-Mobile, one that a rival may not be willing to pay.

Update: Sprint had this to say about the deal:

The combination of AT&T and T-Mobile USA, if approved by the Department of Justice (DOJ) and Federal Communications Commission (FCC), would alter dramatically the structure of the communications industry.  AT&T and Verizon are already by far the largest wireless providers.  A combined AT&T and T-Mobile would be almost three times the size of Sprint, the third largest wireless competitor.  If approved, the merger would result in a wireless industry dominated overwhelmingly by two vertically-integrated companies that control almost 80% of the US wireless post-paid market, as well as the availability and price of key inputs such as backhaul and access needed by other wireless companies to compete. The DOJ and the FCC must decide if this transaction is in the best interest of consumers and the US economy overall, and determine if innovation and robust competition would be impacted adversely and by this dramatic change in the structure of the industry.

The Financial Bits

  • The cash-and-stock transaction is valued at approximately $39 billion.
  • The $39 billion purchase price will include a cash payment of $25 billion, with the balance to be paid using AT&T common stock, subject to adjustment.
  • The cash portion of the purchase price will be financed with new debt and cash on AT&T’s balance sheet.
  • Deutsche Telekom will have an ownership interest in AT&T of approximately 8 percent.
  • A Deutsche Telekom representative will join the AT&T Board of Directors.
  • AT&T has an 18-month commitment for a one-year unsecured bridge term facility underwritten by J.P. Morgan (s jpm) for $20 billion
  • Pro-forma for 2010, this transaction increases AT&T’s total wireless revenues from $58.5 billion to nearly $80 billion, and increases the percentage of AT&T’s total revenues from wireless, wireline data and managed services to approximately 80 percent.

Infrastructure Bits

  • AT&T will gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets.
  • AT&T’s network density will increase by approximately 30 percent in some of its most populated areas.
  • AT&T will expand 4G LTE deployments to an additional 46.5 million Americans for a total of 294 million or 95 percent of the U.S. population.
  • In terms of area covered, the transaction enables 4G LTE deployments to an additional 1.2 million square miles.
  • AT&T will spend more than $8 billion in incremental infrastructure over seven years.
  • The combined company will continue to have a strong employee and operations base in the Seattle area.

12 Responses to “AT&T to Buy T-Mobile for $39 Billion”

  1. Drew P. Cock

    If at&t does buy t-mobile im going to verizon my friend got iphone 4 he says they hound u on prices and its 50$ for 200mb or data t-mobile its 25$ for unlimited

  2. Zander

    i would not like this, AT&T buying T-MObile? the prices wont be the same, might be higher, also many customers might want to change to sprint or verizon. i have heard many experiences from many people and they would not consider going back with AT&T, because of lack of customer support.. to my point i dont know about this..
    T-mobile might be better by itself.

    • Kalisha Thomas

      I ran screaming from AT&T, their lack of customer support is appalling!! They, like so many other companies out source their staff with sub-standard training. I am praying that T-Mobile stand alone and does not merge. The price would be sad to say the least, yes it would go up. Look what happened to Cingular, AT&T ate them for dinner and then raised the prices and changed to plans. I do believe though, that if pressed I’d rather pay more money and go to Verizon if the deal holds. Besides, Verizon has a better coverage plan, they just cost too damn much!

  3. I am a t-mobile costumer: my question to you guys are what is going to happen to our monthly plans will they change. are we able to use at&t phones at the moment with our t-mobile sim cards

  4. Steve Crowley

    I would be among those calling it a manufactured spectrum crisis. The FCC has piled worst-case assumption on top of worst-case assumption to create a short-term panic. Fueling this is the FCC’s reliance on Cisco’s visual networking index (VNI). That forecast is created by the same marketers responsible for selling Cisco’s line of core network products intended to help operators address projected demand. This is a conflict of interest. As a marketing brochure presented to operators who are generally knowledgeable and look at sales literature critically, the VNI is fine. As a document to be relied on for setting spectrum policy, it is wholly inappropriate. Why does the Commission not rely instead on only objective, independently prepared forecasts, such as those from Yankee Group and Coda, which show lower mobile traffic growth?

  5. Can you believe that I spent yesterday jailbreaking and unlocking our iPhones and switching to the Walmart Family Plan? I am going to save $1200 a year on that plan ($2000 a year to AT&T, $800 a year WFM for 2 phones). There is only one reason AT&T is buying TMobile, squash competition, limit choices, protect pricing.
    We used to stand up to anticompetitive monopolies here in America, now we bail them out and subsidize their huge bonuses.

    If the FCC has any balls, they will kill this merger.

    • AT&T and Verizon will eventually corner the wireless markets and it’s going to get tough for us consumers over the long haul.

      This deal will spell disaster for Sprint because AT&T and Verizon account for about 80% of the data that moves along the wireline networks in the US. If these two entities decide to hike the rates for access to these backbones, it’s going to crush Sprint’s margins.

      The FTC needs to step up and say no to this deal.