AT&T Buys T-Mobile, Leaving Sprint a Weak Third

AT&T has announced that it is buying T-Mobile for $39 billion, a deal that will create the largest cellular carrier in the country and leave Sprint, long expected to merge with T-Mobile, as a very distant third to AT&T and Verizon.

However, the deal is expected to face considerable scrutiny from regulators and consumer activists are likely to object that the merger will reduce competition and raise prices although, according to the U.S. Government Accountability Office, cellular subscription costs fell 50 percent between 1999 and 2009, a period in which there was considerable consolidation.

There are also likely to be doubts that Sprint would long survive as an independent competitor, which could mean that in short order the number of full-scale competitors would be reduced to two.

AT&T now has 95.5 million wireless subscribers while T-Mobile, owned by Deutsche-Telekom, has 33.7 million. Verizon has 93.2 million.

Big win

From a technical standpoint, the deal is a big win, since both companies operate on the GSM standard, which would provide a clear path for both T-Mobile and AT&T to more quickly roll out a new 4G broadband data standard, presumably using AT&T's forthcoming LTE (Long Term Evolution) system.

In an early bid to win regulators' favor, AT&T said it was committing to a significant expansion of 4G LTE deployment to 95 percent of the U.S. population, reaching 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,” AT&T said.

“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. "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.”

Low rates

T-Mobile has traditionally offered some of the lowest rates of the major cellular carriers, although its network was not as widely available as its three larger competitors, which made it an impactical choice for many consumers.

AT&T is expected to honor current T-Mobile contracts but it is likely that once those expire, T-Mobile customers may have to convert to AT&T’s higher rates. On the other hand, a more geographically robust network might reduce roaming charges or signal problems for consumers who travel in rural and other currently under-served areas.

That's not an argument consumer activists are likely to accept, however.

“Don’t believe the hype,” S. Derek Turner, research director of Free Press Research, a Washington think tank, told The New York times. “There is nothing about having less competition that will benefit wireless consumers. And if regulators approve this deal, they will further cement duopoly control over the wireless market by AT&T and Verizon.”

A surprise

The deal was a bolt from the blue for telecom industry observers. It had been a closely guarded secret since at least last December, when negotiations reportedly became more intense as speculation about a Sprint-T-Mobile merger grew.