US telecoms giant AT&T announced today that it will acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction valued at approximately $39bn.
AT&T said that the transaction commits it to a significant expansion of 4G LTE deployment to 95% of the U.S. population to reach an additional 46.5 million Americans beyond its current plans – including rural communities and small towns.
‘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.’
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%. A Deutsche Telekom representative will join the AT&T Board of Directors.
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.
Thomas Wehmeier, principal analyst at Informa Telecoms & Media, commented: ‘Rene Obermann has pulled off one of the most spectacular bluffs in recent history by engineering the sale of Deutsche Telekom’s US subsidiary to AT&T, a move predicted by few, but one that will dramatically alter the structure of the US mobile industry if approved.’
He added: ‘T-Mobile USA’s standing within the Deutsche Telekom business had veered dramatically in recent years from the star performer in its global portfolio to an isolated and increasingly problematic black sheep. The sale of the unit helps Deutsche Telekom to recoup the value sunk into the business, while retaining a strategic interest in the hugely important US market through its 8% equity holding in AT&T.’
Wehmeier noted that the strong transatlantic ties that should now develop between AT&T and Deutsche Telekom will represent a counter-balance to the deepening partnership emerging between Vodafone and Verizon. However, he pointed out that the concentration of close to 75% of the wireless market into the hands of just two players, AT&T and Verizon, will inevitably draw fire from the US authorities, including the FCC and the Department of Justice.
Ovum analyst Steven Hartley said: ‘The deal is symptomatic of growing market maturity in the US, but is better for AT&T than Deutsche Telekom. AT&T gains spectrum for the forthcoming 4G battle and synergies. Deutsche Telekom gets a short-term cash boost way below the price it paid to enter the US and loses its global presence.
‘Nevertheless, Sprint is the biggest loser in this deal. It had 16% connection market share in Q4 2010 and was the third largest player of four nationwide carriers. It will remain third, but will have half the connection share of Verizon Wireless. Just as it was beginning to recover from its disastrous previous few years, so it is being further cut adrift from the leaders.
‘The key benefit for AT&T is T-Mobile’s spectrum. This enables AT&T to boost its own LTE plans, while also leveraging T-Mobile’s recent aggressive HSPA+ roll-out. The technology fit makes this so much more appealing than an oft-rumoured, but illogical T-Mobile/Sprint tie up.’
Hartley pointed out that despite the benefits of the deal, the integration will not be entirely straightforward. ‘While certainly simpler than a Sprint/T-Mobile integration would have been, AT&T and T-Mobile still have technical hurdles to overcome, not least the fact that they operate today in different GSM spectrum bands. So even after the companies come together it will be some time before devices from the two operators are able to operate on each others’ networks.’