AT&T, the nation’s largest carrier has agreed to buy T-Mobile USA, the nation’s fourth-largest carrier for $39 billion.
The merger would create the largest cellular phone carrier in the country as consumers increasingly flock to smartphones and tablets to access the Internet.
The unexpected move follows a recently announced plan by T-Mobile to reorganize and restructure to reverse its poor performance. The carrier’s subscriber base dropped in 2010 to 33.73 million from 2009′s 33.79 million and revenues fell to $16.55 billion from $16.76 billion. Operating profits also fell in 2010.
T-Mobile was also known to face constraints in expanding its 3G/4G network to take on more 3G/4G subscribers because it had fewer spectrums than other carriers.
AT&T on Sunday had announced that its board and that of Deutsche Telekom had approved the deal, which includes $25 billion in cash and the rest in AT&T stock.
According to AT&T CEO Randall Stephenson, this transaction represents a major commitment to strengthen and expand critical infrastructure of our nation’s future. The merged company would bring wireless access to more rural and underserved areas sooner than the separate companies would.
Specifically, AT&T promised to provide 4G wireless services to 95% of the population by building more cell towers across the country. That’s 46.5 million more consumers than the company originally planned to provide with 4G.
The combined company would have about 130 million users. Economists and policymakers have been looking to mobile Internet services as a driver of future growth.
The deal will be closely examined by federal regulators because a merger would have consequences for many consumers.
Key lawmakers, including Sen. Herb Kohl (D-Wis.), head of the Senate Judiciary antitrust subcommittee stated that the group would closely scrutinize the deal for implications on consumer wireless prices and quality of service.
Consumer advocacy groups immediately criticized the merger. They pointed to consistently higher mobile phone bills each successive year. Carriers are also switching billing to tiered data plans that consumer groups fear will lead to higher costs.
T-Mobile has offered some of the lowest service prices in recent years.
The deal would have to be approved by antitrust regulators at the Justice Department and the FCC, which oversees the transfer of wireless licenses.
According to Deutsche Telekom AT&T has the right to increase the portion of the purchase price paid in cash by up to $4.2 billion with a corresponding reduction in the stock component.
Although the planned purchase is logical for AT&T because both carriers’ networks use GSM and W-CDMA HSPA + technology, T-Mobile’s 3G and 4G phones operate in the 1.7/2.1GHz bands, whereas AT&T’s 3G/4G phones operate in the 850/1900MHz bands. Merging the networks will create challenges in migrating consumers from one set of bands to another.