Editor’s Note: The following article is reprinted from Network World.
AT&T’s surprise buyout of T-Mobile USA for $39 billion has industry watchers scrambling to figure out what the deal means for subscribers, the U.S. cellular industry and investors.
If it passes muster with U.S. regulators, the combined company will have about 129 million subscribers, 34 million of them from T-Mobile. That compares to Verizon’s 94 million and Sprint Nextel’s 50 million.
AT&T and T-Mobile have the same underlying cellular network infrastructure, GSM, and both are heading toward the next phase: Long Term Evolution or LTE. AT&T’s press release specifically says the merger of the two networks will let it deploy LTE more aggressively across the U.S. The deal has been approved by the boards of directors of AT&T and T-Mobile’s German parent, Deutsche Telekom.
The transaction will be mainly cash: about $25 billion, with the balance in AT&T stock. T-Mobile USA’s parent, Deutsche Telekom, will reportedly take an 8 percent ownership stake in AT&T as a result. AT&T is getting T-Mobile for considerably less than the nearly $51 billion paid by Deutsche Telekom a decade ago, in 2001.
But it may not be a done deal. Because of its size, it’s likely to get a close look from U.S. regulators, says Business Insider’s Dan Frommer. “Or the deal could be blocked completely—last year was the first year that the FCC did not conclude the U.S. wireless industry was ‘competitive,’” Frommer notes. “The companies expect the deal to close in ‘approximately 12 months’—a long time.”
The deal could trigger a realignment in the U.S. cellular market. There’s already speculation that Verizon might bid for Sprint Nextel, both using CDMA cellular technology, and regional carriers could band together to create a low-price, innovative counterweight.
AT&T’s cellular spectrum covers 850 and 1900 MHz for GSM/GRPS/EDGE and for its expanding UMTS/HSPA and increasingly HSPA+ 3G services. T-Mobile uses mainly the 1900 MHz band for its GSM-based services. In late 2008, the company began deploying its UMTS 3G service in the 1700/2100 MHz AWS band. It’s been aggressive in deploying HSPA+ technology, which, the company claims, can boost average download speeds to 21Mbps from 7.2Mbps and create more reliable connections.
Both companies are taking a two-pronged approach to cellular data: upgrading 3G services to support HSPA+, and moving toward LTE. AT&T announced in January that it will begin building out its LTE network in the summer of 2011, with the initial nationwide phase completed in 2013. Late in 2010, AT&T paid Qualcomm nearly $2 billion for the latter’s 700 MHz spectrum holdings, enough to cover 300 million people nationwide for LTE service, according to the carrier.
In an interview Sunday with Ina Fried of All Things Digital’s Mobilizer blog, AT&T President Ralph De La Vega cited the dovetailing of spectrum holdings as a key reason for the deal. “The first thing is this deal alleviates the impending spectrum exhaust challenges that both companies face,” De La Vega says. “By combining the spectrum holdings that we have, which are complementary, it really helps both companies.”
Secondly, he says, “just like we did with the old AT&T Wireless merger, when we combine both networks what we are going to have is more network capacity and better quality as the density of the network grid increases.”
Finally, De La Vega reiterated the company’s pledge to cover 95 percent of the U.S. population with LTE services.
Although LTE peak rates are 100Mbps for downloads and 50Mbps for uploads, users initially are likely to see speeds in the 6-10Mbps range. At least in theory, the AT&T LTE strategy now gives T-Mobile subscribers a path to high-capacity wireless broadband.
Bloggers and other pundits are weighing in, and ahead of the opening of the stock market, much of the commentary is critical.
“One bad company buying another,” is how Business Insider contributor Robert Scoble, a self-confessed AT&T despiser, summed up the news.
“While this is great news for both companies, it’s an awful idea for consumers—and I desperately hope the US antitrust authorities rake this merger over the coals,” declared Sascha Segan, at PC Magazine. Segan predicts T-Mobile’s lower-priced service plans will evaporate, dismisses AT&T’s claims that past mergers have led to lower prices in the cellular industry over the past decade, and U.S. consumers will have fewer phones to choose from.
“The merged carrier will not have T-Mobile’s friendliness, nimbleness, or level of customer service,” Segan writes. “Just like in the horrifying Sprint-Nextel mess or during the long, slow, grinding AT&T/Cingular merger, the merged carrier will sink to the minimum customer service level of its parts.”
Others are focusing on the alleged decrease in competition. “[The] American [wireless] competitive landscape looks a lot like duopoly because two major companies now control the vast majority of the market, creating an impenetrable barrier to entry for other players,” writes Christian Zibreg, at Bright Side of the News. “On the upside, consumers may benefit from a single business entity operating a huge GSM network.”