AT&T Inc said Monday that if its deal to buy T-Mobile USA goes through, T-Mobile subscribers with 3G phones will need to replace those to keep their wireless broadband service working.
But there will be plenty of time to do that.
Dallas-based AT&T said Sunday it had agreed to buy T-Mobile USA for US$39 billion. If approved by regulators, the deal would close in about a year.
AT&T would pay about US$25 billion in cash to Deutsche Telekom, Germany’s largest phone company, and stock that is equivalent to an eight per cent stake in AT&T.
Deutsche Telekom would get one seat on AT&T’s board.
AT&T said that some time after the closing, it plans to rearrange how T-Mobile’s cell towers work.
The airwaves they use for third-generation services, or 3G, will be re-purposed for 4G, which is faster.
That would leave current T-Mobile phones without 3G. They would need to be replaced with phones that use AT&T’s 3G frequencies.
Ralph de la Vega, AT&T’s head of wireless and consumer services, said this will happen as part of the normal phone-upgrade process.
Nothing to worry about
“There’s nothing for them to worry about … it will be done over time, in a way that’s good for customers and good for AT&T,” de la Vega said in an interview.
The whole process will take several years, he said.
AT&T shares rose 27 cents to US$28.21 in midday trading Monday.
The deal would reduce the number of wireless carriers with national coverage from four to three, and is sure to face close regulatory scrutiny. It also removes a potential partner for Sprint Nextel Corp, the struggling No 3 carrier, which had been in talks to combine with T-Mobile USA, according to Wall Street Journal reports.
AT&T is now the country’s second-largest wireless carrier and T-Mobile USA is the fourth largest. The acquisition would give AT&T 129 million subscribers, vaulting it past Verizon Wireless’ 102 million. The combined company would serve about 43 per cent of US cellphones.
For T-Mobile USA’s 33.7 million subscribers, the news doesn’t immediately change anything. Because of the long regulatory process, AT&T expects the acquisition to take a year to close.
But when and if it closes, T-Mobile USA customers would get access to AT&T’s phone line-up, including the iPhone.
The effect of reduced competition in the cellphone industry is harder to fathom.
Public interest group Public Knowledge said that eliminating one of the four national phone carriers would be “unthinkable”.
“We know the results of arrangements like this – higher prices, fewer choices, less innovation,” said Public Knowledge president Gigi Sohn, in a statement.
T-Mobile has relatively cheap service plans compared with AT&T, particularly when comparing the kind that don’t come with a two-year contract.
AT&T CEO Randall Stephenson said one of the goals of the acquisition would be to move T-Mobile customers to smart phones, which have higher monthly fees.
AT&T “will look hard” at keeping T-Mobile’s no-contract plans, he said.
AT&T’s general counsel, Wayne Watts, said the cellphone business is “an incredibly competitive market,” with five or more carriers in most major cities.
He pointed out that prices have declined in the past decade, even as the industry has consolidated. In the most recent mega-deal, Verizon Wireless bought No 5 carrier Alltel for US$5.9 billion in 2009.
Deal to face tough review
Stifel Nicolaus analyst Rebecca Arbogast said the deal will face a tough review by the US Federal Communications Commission and the Justice Department.
She expects them to look market-by-market at whether the deal will harm competition.
Even if regulators approve the acquisition, she added, they are likely to require AT&T to sell off parts of its business or T-Mobile’s business.
Verizon had to sell off substantial service areas to get clearance for the Alltel acquisition.
To mollify regulators, AT&T said in a statement Sunday that it would spend an additional US$8 billion to expand ultrafast wireless broadband into rural areas.
Instead of covering about 80 per cent of the US population with its so-called Long Term Evolution, or LTE network, AT&T’s new goal would be 95 per cent, it said.
That means blanketing an additional area 4.5 times the size of Texas. The network is scheduled to go live in a few areas this summer, but the full build-out will take years.
The deal has been approved by the boards of both companies. Dallas-based AT&T can increase its cash portion by up to US$4.2 billion, with a reduction in the stock component, as long as Deutsche Telekom receives at least a five per cent equity ownership interest in the buyer.
The agreement doesn’t leave room for other buyers to jump in with a higher bid, AT&T said.
AT&T would finance the cash part of the deal with new debt and cash on its balance sheet and will assume no debt from T-Mobile.
– AP
