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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

March 20, 2011 at 12:09 PM

T-Mobile USA sold to AT&T for $39 billion

After months of rumors about its fate, Bellevue-based T-Mobile USA was sold today to AT&T for $39 billion in a deal that’s reshaping the wireless industry as it begins delivering a new generation of services and devices.

If the deal is approved by regulators, AT&T will become the nation’s largest wireless carrier by a significant margin, leapfrogging Verizon Wireless and extending its upcoming mobile broadband network to 95 percent of the population.

Until the deal closes next year, customers of T-Mobile and AT&T should be unaffected and no, T-Mobile isn’t getting the iPhone just yet.

The long-term fate of T-Mobile employees is unclear but AT&T pledged to maintain a large footprint in the Seattle area where the U.S. wireless industry was spawned. A spokesman said AT&T will keep its headquarters in Dallas but “we plan to maintain a significant presence in Seattle.”

There was speculation in recent weeks that T-Mobile – the fourth-place carrier – would merge with third-place Sprint and perhaps Kirkland-based Clearwire, improving Sprint’s position against the largest two carriers, AT&T and Verizon.

But instead AT&T’s bulking up for its intensifying competition with Verizon, acquiring T-Mobile from parent Deutsche Telekom for $25 billion in cash and plus $14 billion worth of stock in a deal they expect to close in early 2012.

Deutsche Telekom will end up as AT&T’s largest shareholder with 8 percent of the Dallas-based company.

AT&T will use T-Mobile’s spectrum and network of towers to improve the quality of its service, which has been a sore point since it was burdened by heavy data usage of iPhone users starting in 2007. It also settles for good the question of which “fourth generation” network T-Mobile will pursue, since its customers will now have access to the LTE technology that AT&T’s developing.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,” Randall Stephenson, AT&T chairman and chief executive, said in the release. “It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people.”

Deutsche Telekom will use the proceeds to pay down debt and build up its position in Europe.

“We have achieved the best solution for our company, our customers and shareholders,” DT Chief Executive Rene Obermann said in a release. “This will strengthen our position in Europe, whilst we are still participating in the rapidly growing business of mobile data. We will be able to focus more on the opportunities of a modern infrastructure in Germany and Europe, as well as in Internet products that accompanies to our strategy ‘fix, transform and innovate.'”

T-Mobile and AT&T were already distant cousins. AT&T descended from the McCaw family cellular phone companies formed in the 1980s, and T-Mobile was previously VoiceStream Wireless, a company started by McCaw veteran John Stanton.

Deutsche Telekom paid around $30 billion for VoiceStream, which it turned into T-Mobilee USA. The deal was similarly announced on a Sunday, in 2000, and was initially valued at $50.7 billion but fell in value before it closed in 2001.

Together the companies employ around 8,500 people on the Eastside, but the overlapping administrative positions mean some cuts are likely, not to mention the duplicate stores operated across the country.

AT&T didn’t specify what will happen to T-Mobile employees but its release implies that it intends to maintain T-Mobile staff and its large concentration of employees in the Seattle area. An excerpt:

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.

The AT&T spokesman said the company is still developing its “synergy plan” but the deal is intended to spur growth and create more opportunities for employees.

“We share similar spectrum so there’s a lot of positive knowledge we’re looking forward to tapping into,” he said. “Any reduction we anticipate will come through natural attrition. The bulk of the cost synergies are going to come through procurement and operational scale. That’s how we view the cost side of this.”

By acquiring T-Mobile, AT&T’s effort to expand its network leaps ahead. It also means that customers of the combined company will have access to both the current 3G network and AT&T’s new ultrafast fourth-generation LTE network as it comes online.

It’s acquiring 33.7 million T-Mobile customers, T-Mobile’s wireless spectrum and T-Mobile’s collection of cell sites.

AT&T’s market share will jump from about 33 percent to 43 percent with T-Mobile folded in. Verizon has around 35 percent of the wireless market.

Obtaining regulatory approval will be a challenge. The companies may be forced to divest markets, letting go some subscribers, to obtain approval, industry consultant Chetan Sharma said.

“I don’t see them approving as is,” he said, predicting that “it will be a long, drawn process in terms of analysis to see if this makes it less or more competitive.”

AT&T is apparently anticipating the scrutiny. In its release, it asserted that market competition is “escalating” and consumers have multiple wireless options:

“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.”

AT&T said customers of both companies “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.”

In an advisory note on its site, T-Mobile said customers will see no changes in service or rates until after the deal closes. T-Mobile phones will continue to work, and the company also said it will also honor multi-year contracts that extend beyond the takeover.

T-Mobile’s statement said the merger “will ensure the deployment of a robust 4G LTE network to 95% of the U.S. population, something neither company would achieve on its own. Also, because of our compatible networks and spectrum, the customers of T-Mobile USA and AT&T will experience improved voice and data service almost immediately after the networks are integrated.”

None of the integration work will begin until regulators approve the deal, though.

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