POSTED: 11:42 a.m. HST, Mar 20, 2011
NEW YORK >> AT&T Inc. said today it will buy T-Mobile USA from Deutsche Telekom AG in a cash-and-stock deal valued at $39 billion that would make it the largest cellphone company in the United States.
The deal would reduce the number of wireless carriers with national coverage from four to three, and 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 country's 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 to make it the largest U.S. cellphone company.
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. But 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 that 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," said Public Knowledge president Gigi Sohn, in a statement.
T-Mobile has relatively cheap service plans compared with AT&T, particularly when comparing the kind that don't come with two-year contract. AT&T CEO Randall Stephenson said one of the goals of the acquisition will be to move T-Mobile customers to smart phones, which have higher monthly fees. AT&T "will look hard" at keeping T-Mobile's no-contract plans, he said.
AT&T will pay about $25 billion in cash to Deutsche Telekom, Germany's largest phone company, and stock that is equivalent to an 8 percent stake in AT&T. Deutsche Telekom will get one seat on AT&T's board.
Like Sprint, T-Mobile has been struggling to compete with much larger rivals AT&T and Verizon Wireless, and its revenue has been largely flat for three years. Bellevue, Wash.-based T-Mobile USA's subscriber count has stalled at just under 34 million, though it posts consistent profits.
Deutsche Telekom has been looking at radical moves to let it get more value out of its U.S. holding, including a possible combination with a U.S. partner.
To assuage regulatory concerns, AT&T said in a statement Sunday that it would spend more to expand ultrafast wireless broadband into rural areas. It also said the deal will improve network quality for the customers of both companies and increase the number of cell towers by about 30 percent in some of its most populated areas, while avoiding construction of additional towers.
The deal has been approved by the boards of both companies. Dallas-based AT&T can increase its cash portion by up to $4.2 billion, with a reduction in the stock component, as long as Deutsche Telekom receives at least a 5 percent equity ownership interest in the buyer.
AT&T will finance the cash part of the deal with new debt and cash on its balance sheet and will assume no debt from T-Mobile.