While rumors were swirling around all weekend, it’s now official: AT&T to Acquire T-Mobile USA from Deutsche Telekom.
With subscriber complaints multiplying about AT&T’s inadequate mobile broadband infrastructure, the company was likely pressured into this deal as a quick fix. Randall Stephenson, AT&T Chairman and CEO said, “This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future. 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. During the past few years, America’s high-tech industry has delivered innovation at unprecedented speed, and this combination will accelerate its continued growth.”
According to the presss release, AT&T will now commit to a significant expansion of LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns. This helps achieve the Federal Communications Commission (FCC) and President Obama’s goals to connect “every part of America to the digital age.”
Yet, T-Mobile USA does not have a clear path to delivering LTE. Therefore, we think that AT&T plans on using T-Mobile’s AWS spectrum to complement its own 700MHz licenses as it evolves its mobile data network to LTE. Note that MetroPCS already has a live LTE network operating in the AWS band, so there’s precedent for it.
AT&T stated that its mobile data traffic grew 8,000 percent over the past four years, with the expectation that it will increase by another order of magnitude between 2010 and 2015. With the addition of the T-Mobile spectrum and cell infrastructure, AT&T will be in much better position to support the increasing number of high-demand users and mobile devices (especially smart phones and media tablets).
Implications of this deal
Deutsche Telekom will be getting $25 billion in cash and $14 billion in stock, giving it an 8 percent stake in AT&T. To the best of our knowledge, this will be the only foreign ownership of AT&T (Note that UK based Vodafone owns about 45% of Verizon Wireless). We wonder if that will effect U.S. government use of the “new AT&T” wireless network for its mobile workers.
More importantly, with less competition (only 3 large wireless carriers left in the U.S.) mobile data plans will likely become more expensive.
Sprint will be a big loser if this deal goes through, as it was engaged in merger talks with T-Mobile. Sprint was also hoping that T-Mobile would invest in Clearwire to help the latter build out its Mobile WiMAX network. There was also talk of T-Mobile being a MVNO reselling CLEAR 4G (Mobile WiMAX). “This will certainly make Sprint’s life more difficult,” said Roger Entner, a consultant with Recon Analytics. Sprint may need to turn to an acquirer of its own, although potential buyers may be limited. Comcast was rumored to be interested but a knowledgable source says that Comcast isn’t interested in getting into the wireless business (other than being a MVNO).
In addition, LTE upstart provider LightSquared was believed to have had repeated talks with T-Mobile about being a national roaming partner and potential investor/MVNO. None of that is likely to happen now that T-Mobile will be part of AT&T.
If this acquisition is approved by U.S. regulatory bodies (FCC and the Department of Justice), it will reinforce the risks of the market becoming a virtual duopoly (AT&T and VZW), which is contrary to the FCC’s aim of increasing competition in the US mobile broadband market. Since it will be years before LTE is ubiquitous amongst all U.S. wirless carriers, 3G will be the dominant network technology for quite a while. As VZW and Sprint use EVDO/CDMA for 3G, consumers will have only one choice in most markets when it comes to HSPA/GSM based 3G mobile data services. So this deal will hardly be a bonanza for U.S. mobile subscribers.