March 21, 2011, 1:49 PM

AT&T to buy T-Mobile and expand wireless broadband access

But price-sensitive T-Mobile customers may minimize the effect on m-commerce.

Lead Photo

AT&T Inc. and Deutsche Telekom AG today announced they have entered into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction currently valued at approximately $39 billion. The agreement has been approved by the boards of directors of both companies.

“AT&T’s acquisition of T-Mobile USA provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies’ customers,” AT&T says in a statement. In addition, it provides a fast and efficient solution to the impending exhaustion of wireless spectrum in some markets, which limits both companies’ ability to meet the ongoing explosive demand for mobile broadband, the company adds.

Spectrum is the range of radio frequency available to wireless carriers. Spectrum is purchased from the federal government.

“The purpose of this transaction is that you have two companies who have very complementary spectrum which is very valuable in this industry to bring these services to market,” says Randall Stephenson, chairman and CEO of AT&T, in a company video announcement. “The spectrum is complementary, the networks are very, very complementary, we’re on the same technology. So we can put the spectrum and the technology together and this produces something that no other transaction could produce: an immediate lift to capacity and an immediate improvement in service quality. And it allows us to do something that is very unique; that is, we’re going to build mobile broadband, LTE, across 95% of the United States as a result of this transaction.”

LTE refers to long-term evolution, a mobile network standard in continuing development. It facilitates 4G wireless networks, which are faster than the common 3G networks. T-Mobile operates a 4G network.

AT&T has a reputation for poor service compared with its competitors. The iPhone was offered exclusively on AT&T from 2007 to 2009. As a result of iPhone subscribers’ immense use of wireless data services, AT&T’s network became crowded. Stephenson sees T-Mobile as a vehicle to boost AT&T’s reputation and capabilities in the wireless market.

“This is something that will allow us to truly accelerate the service improvement process,” he says. “This gives us the spectrum we need to really address the growth we’re seeing over the next few years.”

The acquisition would give T-Mobile customers a significantly wider array of devices to choose from, including high-end smartphones like the iPhone and tablets like the iPad. The fast-growing adoption of smartphones and tablets and subsequent explosion of mobile web use are driving mobile commerce, which depends on the kind of experience a smartphone or tablet has to offer, not to mention smartphones’ and tablets’ ability to run mobile apps. The question for retailers is: What would an AT&T/T-Mobile combination mean to m-commerce?

“The acquisition would have a minimal impact on mobile commerce, as I think many of T-Mobile’s customers are ‘value’ segment customers,” says Mark Beccue, senior analyst, consumer mobility, at ABI Research, whose specialties include wireless networks and mobile commerce. By “value” Beccue means consumers looking for low-end phones and service plans, not high-end smartphones. “It is too early to tell if AT&T will aggressively pursue the value segment customer, but I doubt it. But certainly a percentage of T-Mobile customers will migrate to smartphones.”

Noah Elkin, principal analyst at eMarketer Inc., says a shift in T-Mobile customers from feature phones (those that predate the smartphone) to smartphones will indeed help m-commerce. But how big that shift will be, and how much help it will provide, is up in the air.

“One thing to keep in mind is T-Mobile is a budget carrier,” Elkin says. “While they certainly offer 4G smartphones and a wide array of devices, and while an acquisition would certainly open the gates for more customers to adopt the iPhone, there still is an open question of how many of them will be willing to pay the price. A lot depends on the way AT&T prices plans with T-Mobile customers in mind.”

The acquisition still must pass muster with the U.S. Department of Justice and the Federal Trade Commission. AT&T seems to be sweetening the deal for the potentially aggressive federal audience by stressing a multi-billion dollar investment in wireless network infrastructure, playing to President Obama’s and the Federal Communications Commission’s goal to digitally connect every part of America.

With this transaction, AT&T commits to a significant expansion of 4G LTE network deployment to 95% of the U.S. population to reach an additional 46.5 million Americans beyond current company plans, AT&T says.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,” AT&T’s Stephenson says. “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.”

The acquisition will bolster AT&T’s position as the No. 1 wireless carrier in terms of subscribers. Verizon had the top spot for two years since its 2009 acquisition of carrier Alltel. But AT&T reported adding 2.8 million new customers in the fourth quarter of 2010. According to the big-four carriers’ current, official figures, AT&T has 95.5 million wireless subscribers, Verizon 94 million, Sprint 49.9 million and T-Mobile 33.7 million.

In 2010 there were 231.5 million mobile phone users and 296.3 million mobile phone subscriptions, according to research firm eMarketer Inc. Many users have more than one phone, such as executives who have both company and personal phones. This year, eMarketer projects there will be 236.6 million mobile phone users and 302.8 million subscriptions. There are 308.7 million Americans according to the 2010 U.S. Census, which would mean, based on the eMarketer 2011 projection, that 76.6% of Americans use a mobile phone.

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