AT&T buys T-Mobile USA in shock $39bn deal
Deal brings compatible 3G network and additional capacity, though could take over a year to complete
Published: 20 March, 2011
READ MORE: M&A | US | T-Mobile | AT&T | HSDPA
AT&T is to buy T-Mobile USA for $39bn in a shock deal. In all the whirl of speculation about TMo's future over the past months, it was assumed it would tie up with Sprint, Clearwire, LightSquared or any combination of those. Instead, all those potential partners will be left disappointed as the two main GSM/HSPA carriers join forces.
If the deal is cleared, it will hardly be a victory for the FCC's aim of increasing competition in the US mobile broadband world, instead reinforcing the risks of the market becoming a virtual duopoly. And it will be a blow to both the national 4G wholesale networks, Clearwire and LightSquared, both of which are understood to have had repeated talks with TMo, which would have been valuable as a national roaming partner and potential investor/MVNO.
Under the terms of the deal, TMo parent Deutsche Telekom will receive $25bn in cash and $14bn in AT&T shares. It will become the largest minority shareholder in AT&T with an 8% stake. However, AT&T has the right to increase the percentage of the purchase price paid in cash by up to $4.2bn, which would then reduce the stakeholding. DT will receive on seat on the AT&T board.
The deal had been approved by both boards of directors but needs to be approved by the FCC and the Department of Justice, which could take over a year to achieve. The latter's antitrust agency could be expected to impose some fairly stringent conditions in terms of spectrum holdings in overlapping markets, but also address the broader competitive issue, that consumers will have only one choice in most markets when it comes to GSM services. That problem will get less serious as all the tier one carriers move to 4G, but that will take years to complete.
AT&T is very aware of the issue, and how it may be affected by current negotiations at the FCC with rural carriers, which claim they are increasingly unable to compete with the big two. In its statement, the carrier said: "The US wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal. The US is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market."
The transaction is expected to close in the first half of 2012, after which the German telco says it plans to use about $18.4bn of the proceeds to reduce debt and $7bn for share buybacks.
If the merger goes through, AT&T will hugely increase its market lead in terms of subscribers as well as gaining additional HSPA+ capacity (TMo's 3G+ network is more advanced, though its coverage is far sparser and it has no LTE strategy or spectrum). At current rates, AT&T would have 129.3m mobile customers after merger, compared to 95.54m now, well ahead of Verizon Wireless' 94.14m and Sprint's 49.91m. Clearwire has 4.38m in its own right.
More M&A News
More US News
More T-MOBILE News
COMMENTS
Carrier Broadband Performance: Africa & Middle East
Carriers are using mobile broadband as their weapon of choice in the fight against the commoditization of voice and falling ARPU. This...
Voice over LTE: Market Analysis and Forecasts
VoLTE offer unique advantages in lowering a carrier's voice infrastructure economics and promises to improve voice quality, device...
Satellite Phones: Will Dual Mode Help the Phoenix Rise from the Ashes?
Satellite phones have followed an arduous path since their much-hyped launch more than a decade ago. The hype was followed by an e...
