AT&T will buy T-Mobile USA for $39 billion in cash and stock, easily making AT&T the nation's largest wireless carrier, ahead of top-ranked competitor Verizon Wireless and reducing the number of major national wireless carriers from four to three.
Consumer groups are sure to object because of concerns over market consolidation and less competition, but some analysts said the deal makes sense and won't lead to higher prices. Rumors circulated last year that T-Mobile was expected to be sold, possibly to third-place Sprint, so AT&T's emergence was somewhat of a surprise.
The deal, announced on Sunday by both AT&T and T-Mobile's parent Deutsche Telekom, has been approved by the boards of both companies. Under the deal, Deutsche Telekom would receive an 8% equity stake in AT&T and a board seat.
The transaction is expected to close in 12 months, the companies said. It is subject to federal regulatory approval, where it will undoubtedly receive close scrutiny, given its size and impact on the competitive landscape. A conference call on the agreement is set for 8 a.m. EDT Monday.
AT&T said the deal will add T-Mobile's 34 million customers to AT&T's 95.5 million total subscriber base (at the end of 2010), enabling a quicker expansion of 4G LTE wireless networks to the entire subscriber group of about 130 million. By comparison, Verizon had 94.1 million subscribers at at the end of 2010 , although Verizon and AT&T count them somewhat differently.
Some analysts lauded the deal, even though consumer groups are expected to question having more subscribers under the control of a single carrier.
"Bigger is better in a commodity game," said Phillip Redman, an analyst at Gartner who follows the wireless carriers. "Four providers were too many. This may help [third-place] Sprint as it becomes the standalone low-cost provider, and it makes more sense than a Sprint-T-Mobile deal."
Redman said the Federal Trade Commission and Federal Communications Commission will both "take a hard, long look at it, but in the end it will be approved." With three major providers -- Verizon, AT&T and Sprint --Redman added, "I think there is plenty of competition...This is the last of the big mergers" in the wireless industry.
The companies sought to deflect concerns about reduced competition with the combination of two large carriers, noting in a statement: "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 proviers in their local market ...The competitiveness of the market has directly benefited consumers."
Shortly after the takeover was announced, consumer rights group Free Press issued a statement condemning it. "Don't believe the hype: There is nothing about having less competition that will benefit wireless consumers," said Free Press research director S. Derek Turner. "And if regulators approve this deal, they will further cement duopoly control over the wireless market by AT&T and Verizon."
Turner noted that the top four companies already control 90% of the wireless business. If two of the four merge, that means "nothing but higher prices and fewer choices, as the newly engorged AT&T and Verizon exert even more control over the wireless Internet."