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AT&T buys T-Mobile, woos regulators; Sprint in trouble?

AT&T acquired T-Mobile from Deutsche Telekom in a $39 billion deal that will create the largest wireless carrier in the U.S. Almost immediately, AT&T started its campaign to get the deal approved by regulators.
Written by Larry Dignan, Contributor

AT&T on Sunday acquired T-Mobile from Deutsche Telekom in a $39 billion deal that will create the largest wireless carrier in the U.S. Almost immediately, AT&T started its campaign to get the deal approved by regulators.

The deal will have some serious ripple effects in the industry. Among the key items:

  • AT&T and T-Mobile will have a lot of spectrum for expansion.
  • Coverage for both carriers should improve.
  • That spectrum will give AT&T a lot of headroom for 4G LTE expansion.
  • It's unclear whether regulators will go for this deal---even though AT&T blew Washington a lot of kisses in its statement.

Competitively, Sprint becomes a distant third place player and it's unclear whether the company has much of a way forward. Sprint has to resolve its relationship for Clearwire and plot a 4G LTE plan. Meanwhile, AT&T and Verizon Wireless were already dominating the market and now Sprint lacks the heft to compete. T-Mobile and Sprint have been rumored to merge.

Indeed, Sprint will need a merger partner and Verizon Wireless may be a potential option. That move would create a U.S. wireless duopoly with a bevy of smaller players.

As Jason Hiner noted earlier, the wireless parts make sense. Both AT&T and T-Mobile operate on GSM and that means the networks can come together faster. In addition, AT&T's plan to move to LTE can now become T-Mobile's. AT&T will have about $80 million in total wireless revenue combined with AT&T, up from $58.5 billion today. AT&T also needed more wireless spectrum.

In a statement, AT&T CEO Randall Stephenson positioned the deal this way:

It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people. Mobile broadband networks drive economic opportunity everywhere, and they enable the expanding high-tech ecosystem that includes device makers, cloud and content providers, app developers, customers, and more...This transaction delivers significant customer, shareowner and public benefits that are available at this level only from the combination of these two companies with complementary network technologies, spectrum positions and operations. We are confident in our ability to execute a seamless integration, and with additional spectrum and network capabilities.

Stephenson also played to President Obama's goals for nationwide mobile broadband.

Those lines are clearly playing to regulators, which will have to approve the deal. AT&T even noted that it had a union workforce---another mention to court regulator approval. The big question is whether consumers benefit from a AT&T-T-Mobile merger. If coverage improves---both networks can be spotty---AT&T may have a case, but there will be a lot of hecklers.

Indeed, Sprint spokesman John Taylor already made it clear where his company stands:

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.

Among the key nuts and bolts:

  • AT&T will pay $25 billion in cash with the rest in stock.
  • Deutsche Telekom will own about 8 percent of AT&T when the deal is done.
  • AT&T's purchase of T-Mobile is a spectrum play.
  • AT&T estimated that it would take five years to build out its network density to what T-Mobile and AT&T have today.
  • There will be an earnings hit as the T-Mobile deal won't be accretive until the third year after closing.

This acquisition is far from done. There will be a lot of debate over whether a  bulked up AT&T benefits the consumer. AT&T has already started to make its case.

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