AT&T to buy T-Mobile USA

AT&T press release follows verbatim:

AT&T Inc. and Deutsche Telekom AG today announced that they have entered into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction currently valued at approximately $39 billion. The agreement has been approved by the Boards of Directors of both companies.

AT&T’s acquisition of T-Mobile USA provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies’ customers. In addition, it provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some markets, which limits both companies’ ability to meet the ongoing explosive demand for mobile broadband.

With this transaction, AT&T commits to a significant expansion of robust 4G 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.” T-Mobile USA does not have a clear path to delivering LTE.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,” said Randall Stephenson, AT&T Chairman and CEO. “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.”

Stephenson continued, “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.”

Deutsche Telekom Chairman and CEO René Obermann said, “After evaluating strategic options for T-Mobile USA, I am confident that AT&T is the best partner for our customers, shareholders and the mobile broadband ecosystem. Our common network technology makes this a logical combination and provides an efficient path to gaining the spectrum and network assets needed to provide T-Mobile customers with 4G LTE and the best devices. Also, the transaction returns significant value to Deutsche Telekom shareholders and allows us to retain exposure to the U.S. market.”

As part of the transaction, Deutsche Telekom will receive an equity stake in AT&T that, based on the terms of the agreement, would give Deutsche Telekom an ownership interest in AT&T of approximately 8 percent. A Deutsche Telekom representative will join the AT&T Board of Directors.

Competition and Pricing

The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal. The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market. For example, in 18 of the top 20 U.S. local markets, there are five or more providers. Local market competition is escalating among larger carriers, low-cost carriers and several regional wireless players with nationwide service plans. This intense competition is only increasing with the build-out of new 4G networks and the emergence of new market entrants.

The competitiveness of the market has directly benefited consumers. A 2010 report from the U.S. General Accounting Office (GAO) states the overall average price (adjusted for inflation) for wireless services declined 50 percent from 1999 to 2009, during a period which saw five major wireless mergers.

Addresses wireless spectrum challenges facing AT&T, T-Mobile USA, their customers, and U.S. policymakers

This transaction quickly provides the spectrum and network efficiencies necessary for AT&T to address impending spectrum exhaust in key markets driven by the exponential growth in mobile broadband traffic on its network. AT&T’s mobile data traffic grew 8,000 percent over the past four years and by 2015 it is expected to be eight to 10 times what it was in 2010. Put another way, all of the mobile traffic volume AT&T carried during 2010 is estimated to be carried in just the first six to seven weeks of 2015. Because AT&T has led the U.S. in smartphones, tablets and e-readers – and as a result, mobile broadband – it requires additional spectrum before new spectrum will become available. In the long term, the entire industry will need additional spectrum to address the explosive growth in demand for mobile broadband.

Improves service quality for U.S. wireless customers

AT&T and T-Mobile USA customers will see service improvements – including improved voice quality – as a result of additional spectrum, increased cell tower density and broader network infrastructure. At closing, AT&T will immediately gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets. The combination will increase AT&T’s network density by approximately 30 percent in some of its most populated areas, while avoiding the need to construct additional cell towers. This transaction will increase spectrum efficiency to increase capacity and output, which not only improves service, but is also the best way to ensure competitive prices and services in a market where demand is extremely high and spectrum is in short supply.

Expands 4G LTE deployment to 95 percent of U.S. population – urban and rural areas

This transaction will directly benefit an additional 46.5 million Americans – equivalent to the combined populations of the states of New York and Texas – who will, as a result of this combination, have access to AT&T’s latest 4G LTE technology. In terms of area covered, the transaction enables 4G LTE deployment to an additional 1.2 million square miles, equivalent to 4.5 times the size of the state of Texas. Rural and smaller communities will substantially benefit from the expansion of 4G LTE deployment, increasing the competitiveness of the businesses and entrepreneurs in these areas.

Increases AT&T’s investment in the U.S.

The acquisition will increase AT&T’s infrastructure investment in the U.S. by more than $8 billion over seven years. Expansion of AT&T’s 4G LTE network is an important foundation for the next wave of innovation and growth in mobile broadband, ensuring the U.S. continues to lead the world in wireless technology and availability. It makes T-Mobile USA, currently a German-owned U.S. telecom network, part of a U.S.-based company.

An impressive, combined workforce

Bringing AT&T and T-Mobile USA together will create an impressive workforce that is best positioned to compete in today’s global economy. Post-closing, AT&T intends to tap into the significant knowledge and expertise held by employees of both AT&T and T-Mobile USA to succeed. AT&T is the only major U.S. wireless company with a union workforce, offering leading wages, benefits, training and development for employees. The combined company will continue to have a strong employee and operations base in the Seattle area.

Consistent with AT&T’s track record of value-enhancing acquisitions

AT&T has a strong track record of executing value-enhancing acquisitions and expects to create substantial value for shareholders through large, straightforward synergies with a run rate of more than $3 billion, three years after closing onward (excluding integration costs). The value of the synergies is expected to exceed the purchase price of $39 billion. Revenue synergies come from opportunities to increase smartphone penetration and data average revenue per user, with cost savings coming from network efficiencies, subscriber and support savings, reduced churn and avoided capital and spectrum expenditures.

The transaction will enhance margin potential and improve the company’s long-term revenue growth potential as it benefits from a more robust mobile broadband platform for new services.

Additional financial information

The $39 billion purchase price will include a cash payment of $25 billion with the balance to be paid using AT&T common stock, subject to adjustment. AT&T has the right to increase the cash portion of the purchase price by up to $4.2 billion with a corresponding reduction in the stock component, so long as Deutsche Telekom receives at least a 5 percent equity ownership interest in AT&T.

The number of AT&T shares issued will be based on the AT&T share price during the 30-day period prior to closing, subject to a 7.5 percent collar; there is a one-year lock-up period during which Deutsche Telekom cannot sell shares.

The cash portion of the purchase price will be financed with new debt and cash on AT&T’s balance sheet. AT&T has an 18-month commitment for a one-year unsecured bridge term facility underwritten by J.P. Morgan for $20 billion. AT&T assumes no debt from T-Mobile USA or Deutsche Telekom and continues to have a strong balance sheet.

The transaction is expected to be earnings (excluding non-cash amortization and integration costs) accretive in the third year after closing. Pro-forma for 2010, this transaction increases AT&T’s total wireless revenues from $58.5 billion to nearly $80 billion, and increases the percentage of AT&T’s total revenues from wireless, wireline data and managed services to approximately 80 percent.

This transaction will allow for sufficient cash flow to support AT&T’s dividend. AT&T has increased its dividend for 27 consecutive years, a matter decided by AT&T’s Board of Directors.

Conditions

The acquisition is subject to regulatory approvals, a reverse breakup fee in certain circumstances, and other customary regulatory and other closing conditions. The transaction is expected to close in approximately 12 months.

Source: AT&T Inc.

MacDailyNews Take: A larger addressable market for iPhone can only be a good thing for Apple.

81 Comments

      1. Even though the iPhone is multi-band, I don’t think you’re going to see a T-Mobile iPhone before iPhone 5. It most likely will come after that. The two networks, even though GSM, have to be integrated first.

    1. Great news for Apple and AT&T but for consumers, not so much.

      What’s next, Verizon buys Virgin? And the two juggernauts continue buying up all of the small fry and their patent portfolios until once again we are left with a choice of two.

      Pepsi/Coke or AT&T/Verizon.

      You realize it’s the small businesses who innovate in order to distinguish themselves from their giant competitors. Once they do, they become an attractive package to the giants, who are two busy trying to figure out what to do with their 10s-of-millions of dissatisfied customers.

      This is a sign of trouble for capitalism if you ask me; the choice of either/or sucks and of course the only thing worse is no choice at all.

      Nope, this is a bad deal for consumers. AT&T is too damn lazy and cheap to go out and lay the groundwork for the future and instead, buys up a competitor who may have already laid out a foundation but struggles to finish the job.

      Now that irate customer who was fed up with AT&T said, Fsck this, I’m going over to T-Mobile! is going to have an epiphany about the future of choice in America. Just like in the movie Wall-e, we’ll have one giant conglomeration providing everything.

      1. Ditto.

        No system is perfect but between government and capitalism I choose capitalism. However, there are problems such as monopolies and so there needs to be something (ie government, yuk!) to maintain competition.

        I dont like to see companies merge. I dont think the consumer benefits in any merger.

        1. Did you just say if you had to choose, you prefer capitalism over government?

          No system is perfect, but I choose government over capitalism simply because our leadership is still elected and CEOs and Boards of Directors are appointed.

          It’s fine if CEOs are chosen from the private sector to sit on our President’s cabinet but, that’s about all the capitalistic influence I can stand. This whole notion that because corporations are the great providers, does not entrust them to be the caretakers of government.

          iCal this, one day there will be an amendment to the Constitution that states there will be a division between corporation and state, just as there is between church and state.

          Capitalism is a religion and they worship gold. Their high priest is the chairman of the Fed and their patriarchal saint is Scrooge McDuck.

  1. Weak players must either grow far faster than the market, sell out while the going is good or die. Telecomm is consolidating.

    Handset players must now do the same. Grow far faster than the market, sell out (if only you could), or die.

    As much as I have admired Motorola in the past (& used their early cell phones from the 80s-2000 and Nokia, I have a gut feel half the handset players will merge or go BK in the next 5 years.

  2. THIS SUCKS BIG TIME!!!!!!!!!

    I only switched to AT&T to use an iPhone I was a happy T-Mobile user, now AT&T will drag T-Mobile down to their level.

    NOT GOOD!

    1. Down to there level? How? Please elaborate. The way I see it, we will simply get much better coverage since now the infrastructure that was placed by T-Mobile will be used to cover AT&T, so if anything, the service is bound to get a lot more robust, not degrade like you stipulate.

  3. Interesting. I had thought that US had some if the highest priced phone service in the world (though I think Canada is the most expensive) in spite of having numerous providers. Now what?

        1. here, here! I’m sure this’ll make Obama’s top 500 list.. yes, yes..

          I live in Canada. telecomm consolidation’s not that bad. the conversation kinda goes like this:

          “if you don’t stop fscking up, I’m outta here—signing with Bell mutha f#kkazzz!”
          two years later,
          “if you don’t stop fscking up, I’m outta here—signing with Rogers mutha f#kkazzz!

          lather, rinse, repeat..

            1. your thoughts are good, botv—I like them, I like them a lot. for me though, the one standout of all the one-liners, and my favourite, is: Big government is bad except for when it isn’t.
              very wise, you’re a wise man.

        2. Even we libertarian weirdos agree that one of the very small number of proper governmental functions is to stop anti-competitive behavior. Business do not like competition, consumers do.

          Business try to kill competition, whether through buying (feel free to use the the term persuading) favorable laws, buying laws/regulations that punish other companies more than it punishes them (e.g., so the small guy cannot compete); price fixing with “competitors”, predatory pricing (recent example Microsoft), etc.

          Thus, if you want to call anti-competitive governmental interference big government, okay. But big government is not one or two or even ten programs, it is the…(let me make up a number since I have no research to support me here) tens of thousands of federal programs that makes government big.

    1. The Obama administration has nothing to do with this, thank God. Did the Obama administration approve your choice of breakfast cereals today? What about what kind of pillow you use?

  4. All that competition is useless when there is tacit collusion around services like texting. And don’t even get me started on data speeds relative to other countries or the lies about “4G.”

    1. Sprint iPhone? Not likely anytime soon. I can’t see Apple building a special, mutant iPhone to support Sprint’s “4G” WiMAX technology. If Sprint eventually adopts LTE, like the rest of the world, then maybe. It’s just not worth a one-off for only one carrier.

        1. I figured Apple would wait until they had a universal iPhone, but the first-generation chips were too power-hungry. They did a dedicated iPhone 4 for CDMA networks for Verizon, the buggest US carrier, to stop the rise of Andriod.

          So what problem does a third, WiMAX phone solve for Apple, exactly? What other major carriers will a WiMAX iPhone work on? At least the CDMA2000 N92 iPhone can be used on a few other networks, including possibly one in China.

          If the AT&T / T-Mobile deal goes through, Apple will at some point be on the two biggest carriers out of three, with Sprint being a distant last-place.

          I’ll believe that one when I see it. Possible? Sure. Likely? I don’t thnk so.

  5. I think this is great; I do understand about compatishion, and that a lot of people will be unemployed.  The 4G T-Mobile has been bragging about  AT&T has but calls 3G.  This should stop a lot of NY & SF bitching.  It will give AT&T more places to put in LTE.  We have lost some compatishion in price, however we now have a race of who will roll out LTE faster.

    1. WetFX? What’s the point of LTE? If you have the ability to download more data, more quickly, AT&T will create more draconian caps and raise prices. They will do as they always do, raise prices, deliver less, and call it better service. AT&T will be charging for every bit that flows to your phone.

      As @MrMcLargeHuge explains, what competition. The bandwidth cartel makes us pay insane amounts of money for services that are laughable in relation to what others get in other countries.

      Make no mistake. This is not about delivering LTE to you. This is about gutting the competition. This is about preventing people from moving to T-Mobile for faster, cheaper, generally better service. An Android phone on T-Mobile was beginning to look awful enticing compared to having to deal with AT&T.

      1. Verizon is already planning to put caps in place for LTE. They’ve said as much in press releases. Do you think there are no costs involved in installing what is effectively a totally new, nation-wide network infrastructure? All carriers adding LTE capability are doing this. AT&T and Verizon had to purchase new spectrum from the government (billions of dollars with each), and it will cost billions to buy all new radio, switching equipment, and expanded backhaul. Do you think they are a charity? They will certainly pass along the costs to the customer. If they didn’t, they wouldn’t be in business. They have employees to pay, equipment costs, maintenance costs, licensing costs, advertising costs, taxes to pay, and they still have to show a profit. So…. yeah, they are going to charge people who use their network more.

        Sure, in countries who are the size of a single state in the US, it’s much less expensive to build, upgrade, and maintain than in a very large geographic area like the US. If you think it’s just greed, then please start your own company, and show the world how it’s done. If you can deliver free or cheap unlimited data, and excellent coverage, and excellent customer service, I’ll sign up for your service.

        This is really about AT&T getting access to more cell sites, more spectrum, and more customers. T-Mobile was a distant 4th place in the US carrier market. If they manage it correctly, the combined company will be in a better position in the market than Verizon. It will probably take them years to make it happen, though.

        1. You forget, you’re addressing mostly a fanboy audience that lives in their mom’s basement. Mom pays their phone bill and gives them a weekly allowance. Reality is not something they understand.

          1. This is Bunsen’s mom, and I don’t really appreciate you talking about me or my little boy that way.

            For your information, Bunsen pays $5 dollars of his monthly bill!

      2. I agree. This is about who is the largest, not the best. AT&T is looking for bragging rights about who has the most customers.

        AT&T could have spent 20-billion dollars and easily upgraded all of its facilities, but that takes time, and once the iPhone made its way to Verizon, AT&T could hear that giant sucking sound of its competitor sucking up another million customers.

        Apple has finally leveled the playing field by bringing iPhone to the two giants of telecom, but instead of working to differentiate themselves by who’s providing the better customer experience, AT&T is shopping for an off-the-shelf quick-fix to surpass Verizon in the market.

        Not until they’ve bought up, or own all of the spectrum to be had, will they begin to address the myriad reasons why they suck so bad.

        Dollars-to-donuts, AT&T will begin marketing the fact that they are now bigger than Verizon. When they do, we’ll know this acquisition wasn’t about AT&T making their customer’s existing lives a little better, but about market share and the perception bigger is better.

        Talk all you want about how noble AT&T is in acquiring key technology, patents, IP, and spectrum to improve the customer experience, but the real story is compensating for the sudden potential uptick in Verizon’s market share since acquiring iPhone, which can only get better as AT&T customers realize they now have a choice of iPhone carriers.

        AT&T is contending with the fact Verizon now has iPhone. The LTE roll-out will be a yawner, simply because it will be yet another tiered service available to metro areas of the country. It will be another decade before LTE is as ubiquitous as 3G.

        Anyone who thinks AT&T has just acquired the largest 4G network in the US is clueless. AT&T just spent 39-billion dollars to acquire all of T-Mobile’s headaches.

  6. This is HUGE! And might mean we’ll see 4G in the next iPhone. AT&T has very little 4G LTE coverage, T-mobile has vast 4G LTE coverage. I can’t see Apple releasing a 4G iPhone for Verizon, but not for AT&T. As AT&T has instantly increased their 4G LTE footprint in the US, I would say the chances of the next iPhone being called “iPhone 4G” are pretty high.

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