AT&T Inc., the country’s second-largest wireless carrier in the U.S., agreed to buy T-Mobile USA, the fourth-largest, from Deutsche Telekom AG in a cash-and-stock deal valued at $39 billion to create America’s largest mobile-phone company.
The transaction — one of the largest since the onset of the financial crisis — is expected to start a fierce battle in Washington as regulators scrutinize the impact of the deal on competition and consumers. The deal would leave just three major cellular companies in the country: AT&T, Verizon and the much smaller Sprint Nextel.
In a press release, AT&T said the agreement has been approved by both companies’ boards of directors. If the deal meets regulatory approval, AT&T will be the largest wireless provider in the United States with 129.2 million customers.
The acquisition would give AT&T additional leverage against its main rival, Verizon. The newly combined company – bringing together AT&T’s 95.5 million wireless subscribers with T-Mobile’s 33.7 million customers – would account for roughly 42 percent of all wireless subscribers in the United States.
Verizon has around 31 percent, said Charles Golvin, a telecom analyst at Forrester Research. T-Mobile customers would have the option to buy an iPhone, helping AT&T combat the migration of the popular device to Verizon.
AT&T will pay about $25 billion in cash and the balance in company stock in a deal that gives Deutsche Telekom about an 8 percent equity stake in AT&T. Regulatory approval may take a year, Dallas-based AT&T said.
“This is a long process from the regulatory perspective and nothing is guaranteed,” said Chris Larsen, a Piper Jaffray & Co. analyst, in an interview. “For these carriers, there’s going to be bigger savings on their networks by joining up.”
T-Mobile is coming off of two years of flat revenue as it struggles to compete with much larger rivals AT&T and Verizon Wireless. Bellevue, Wash.-based T-Mobile USA’s subscriber count has stalled at just under 34 million, though it posts consistent profits.
Sprint had held talks with Deutsche Telekom about acquiring T-Mobile, people with knowledge of the matter said this month. However, the companies hadn’t been able to agree on the valuation of T- Mobile, the people with knowledge of the matter said.
AT&T said Sunday the deal gives it an “optimal combination of network assets” that adds capacity sooner than any other alternative. It also said the deal will improve network quality of both companies and increase the number of cell towers about 30 per cent in some of its most populated areas.
AT&T also said that it would expand the rollout of its high- speed wireless technology, called Long-Term Evolution, or LTE, under the T-Mobile agreement. AT&T will offer the service to an additional 46.5 million people as part of the deal, helping achieve the Federal Communications Commission goal of making broadband available more widely, the company said.
“We studied this thing extensively over the last few months and we’re very confident it will be approved,” Randall Stephenson, AT&T chairman and chief executive officer, said in an interview. “Most local markets have a choice between five carriers, so the space will remain fiercely competitive.”
The T-Mobile deal may give AT&T a way to boost earnings because of the money the companies would save by combining their operations. The companies’ estimate that they could have $40 billion in synergies is a realistic assessment, said Jonathan Chaplin, an analyst with Credit Suisse Group AG.
“Phenomenal deal if it happens,” Chaplin wrote in a research note yesterday. “Huge upside for AT&T; Deutsche Telekom getting a great price; however, we believe regulatory risk is enormous.”
“AT&T’s acquisition of T-Mobile, if approved, brings good news and bad news,” Forrester Research analyst Charles Golvin told Mashable.
He continued: “The good news: high-speed mobile broadband service will improve in quality and coverage, including — in the long run — those in rural communities outside the reach of terrestrial broadband today.”
“The bad news: the cost of that service won’t come down nearly as fast as customers would like, since AT&T and Verizon Wireless combined would own nearly three out of every four wireless subscriptions in the US.
“While clearly troublesome for Sprint and other mobile smaller mobile competitors, It’s also bad news for cable operators, whose incipient mobility products will suffer in comparison to what AT&T and Verizon can offer,” he said.