AT&T To Buy T-Mobile: It Doesn’t Get Any Bigger Than This!

by Gaurav Kheterpal on March 21, 2011

In a completely unprecedented move, AT&T announced Sunday it will buy smaller rival T-Mobile USA for $39 billion. The deal, if and when passed after the intense regulatory scrutiny, would lead to the biggest mobile operator in the United States.  To say that the AT&T-T-Mobile merger will shake-up up the entire wireless industry in the U.S. would be a gross understatement.

The proposed merger is crucial for a number of reasons. First, it implies that the U.S. wireless industry returns to its good old duopoly days with AT&T and Verizon fighting out a two-horse race. Does it signal the end of the line for T-Mobile USA? It raises questions about the struggling Sprint Nextel Corp which been rumored to be in talks with T-Mobile. There are already speculations that Verizon could buy Sprint to even the scoreline at one a piece.

Some believe it’s not a good deal for T-Mobile customers while others believe it’s a blessing in disguise for disgruntled AT&T customers. More importantly, it means fewer wireless choices for customers. I hope, the golden rule of fewer players = lesser competition = increased prices doesn’t hold true in this case. Either way, it doesn’t get any bigger than this in the U.S. wireless industry.

First things first, I’ve to admit that I was completely caught off-guard with AT&T’s announcement. In fact, I was hoping to do a piece on the rumored marriage of Sprint and T-Mobile as and when it was announced. The Sprint T-Mobile merger was supposed to create a rival large enough to challenge the likes of the “Big Two” – #1 Verizon Wireless and #2 AT&T, each of which boasts more than 90 million wireless subscribers. As things stand, AT&T has managed to run away with the bride (T-Mobile) even as the groom (Sprint), with 49.9 million customers, is yet to come to terms with this sudden break-up.

Just to put things in perspective, the proposed merger would make the largest carrier nearly three times the size of Sprint and give the two largest companies nearly 80 percent of U.S. customers under contract. Under the proposed deal, AT&T will get access to T-Mobile’s roughly 35 million customers, thereby helping it surpass Verizon’s 100 million subscriber mark.

AT&T says it will leverage T-Mobile’s infrastructure to reduce dropped calls and improve its unreliable Internet access service in the Bay Area. The carrier has been pushing its case for acquiring T-Mobile arguing that the addition of the smaller carrier would help it reach goals set by the Federal Communications Commission and the president to reach more rural communities and small towns. Though I have no doubt that the proposed deal could help AT&T improve its service but I don’t buy the “rural social service” argument.

Further, an overhaul of AT&T’s pricing strategy can’t be ruled out as T-Mobile’s rates tend to be lower than those of AT&T or Verizon, the current No. 1 wireless carrier.

AT&T says it will pay $25 billion in cash and the balance using common stock, subject to adjustment. In any case, the regulatory approval, if it comes, isn’t expected for at least a year. So, there’s plenty of time for this to sink in.

What do you think of the proposed AT&T-T-Mobile merger? How will it impact the U.S. wireless landscape? Do you believe the deal would squeeze competition and trigger a price war? Please share your opinion by leaving a comment below this post.

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Written by: Gaurav Kheterpal. Follow TheTelecomBlog.comby: RSS,TwitterFacebook, or YouTube.

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Mystro March 21, 2011 at 1:40 pm

Despise AT&T. Been with Tmobile since Powertel/Voicestream. Hate this. Have no choice now but to go to Verizon!

Jen March 22, 2011 at 4:58 am

I have been with Tmobile since they acquired Voicestream, and I too will be taking my services elsewhere. If I wanted to be an AT&T customer, I would have signed a contract at AT&T. My 60 yr old mother and 80 yr old grandmother do not “need” smartphones (which is all that was offered by AT&T at my last visit to their store). I truly hope the government puts a hault to their deal, as it is a clear sign that America is being monopolized. Monopoly is fun as a board game, not played out in the real world.

One can only hope that if this is approved AT&T will be smart enough to keep Tmobile’s customer service department, since they are #1 for a reason.

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