AT&T announced Sunday that it will purchase T-Mobile for $39 billion in a blockbuster deal that will create the largest wireless carrier in the United States. The combined company will have more than 129 million subscribers—AT&T Wireless currently has 95.5 million, and T-Mobile has 33.7 million—compared with more than 101 million subscribers for current market leader Verizon Wireless.
"This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation's future," said AT&T Chairman and CEO Randall Stephenson. "It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people ... 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, we can better meet our customers’ current demands, build for the future, and help achieve the President’s goals for a high-speed, wirelessly connected America.”
Under the terms of the deal, AT&T will pay T-Mobile $25 million in cash and the rest in stock. Deutsche Telekom will also get an 8 percent stake in AT&T and a seat on the AT&T board of directors. T-Mobile was valued at approximately $24 billion, so AT&T is offering a huge premium for the company. Worse, AT&T must pay a $3 billion "breakup" fee if the deal is scuttled by federal regulators.
AT&T Wireless is currently the second largest wireless carrier in the United States, and though it can boast of some technical advantages over Verizon, its bigger rival is also moving more quickly to deploy next-generation LTE (Long Term Evolution) wireless technology. LTE is commonly considered a "true" 4G ("fourth generation") wireless network, whereas AT&T Wireless and T-Mobile currently market slower 3G wireless technologies (like HSPA) as 4G.
Owned by Deutsche Telekom, T-Mobile is the smallest of the four major wireless carriers in the United States (behind Verizon, AT&T, and Sprint) and it markets its own HSPA+ wireless network as "America's largest 4G network." Regardless of the validity of this claim, the T-Mobile linkup will provide AT&T Wireless customers with a broader availability of faster HSPA+ signals while the combined effort moves forward to LTE.
3G and 4G aren't the only wireless technologies relevant to this deal: AT&T and T-Mobile offer the only Global System for Mobile (GSM)-based networks in the country. These networks are compatible with the wireless networks found today in Europe and throughout the world, whereas the Code Division Multiple Access (CDMA) technology used by Verizon and Sprint are not. This compatibility will become less problematic with the advent of LTE, but for now CDMA carriers offer a selection of so-called world phones that include both GSM and CDMA antennas.
Because of competitive reasons, it's not currently possible for AT&T phones to work seamlessly on the T-Mobile network, or vice versa, but this is the case throughout the world and isn't unique to these companies. (Some phones are available in "unlocked" form and can move more easily between network types in the user's native market.) So while the T-Mobile purchase will lessen choice for US-based consumers, it will also enhance the network coverage for AT&T and T-Mobile users. This will be a consideration for the regulators from the US Department of Justice and Federal Communications Commission, who will review the deal.