Wireless telecom giant AT&T disclosed plans Sunday to acquire competitor T-Mobile USA for a cash and stock transaction worth $39 billion from its parent, Deutsche Telekom.
In Puerto Rico, the deal would represent the marriage of the number one and number three wirele ss carriers, the reduction of the number of players to four, and would turn AT&T into the undisputed local industry leader with some 1.4 million subscribers.
The transaction would also come less than a year after AT&T took Centennial out of the market, through another buy out worth $940 million completed in July 2010.
The local effects of the transaction are yet unclear. If approved, AT&T would have 55 percent of the local wireless market, which regulators could see as monopolistic, despite the presence of competitors Claro, Sprint PCS and Open Mobile.
In a statement issued Sunday, AT&T said with this transaction, it would address a number of network availability issues plaguing both carriers as a result of customer demand for more robust and faster services and equipment. Among other things, AT&T committed to expanding significantly 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns. T-Mobile USA does not have a clear path to delivering LTE, AT&T said.
That would mean AT&T would provide LTE services for T-Mobile USA’s 34 million subscribers, including Puerto Rico’s 500,000 customers. The deal is expected to close in about 12 months, T-Mobile officials said Sunday.
“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.”
For T-Mobile customers, the transition would be seamless as both companies operate networks based on the same digital technology. However, when it comes to devices, customers would have access to exclusive handsets and tablet computers offered by the other company. For T-Mobile customers, it would mean the ability to acquire and use Apple’s iPhone and iPad devices from AT&T, while AT&T clients could tap into Android-based devices exclusive to T-Mobile.
“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,” he said. “During the past few years, America’s high-tech industry has delivered innovation at unprecedented speed, and this combination will accelerate its continued growth.”
While the carriers would merge, the transaction calls for T-Mobile’s parent Deutsche Telekom to receive an equity stake in AT&T that, based on the terms of the agreement, would give it an ownership interest in AT&T of approximately 8 percent. A Deutsche Telekom representative will join the AT&T Board of Directors.
“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,” said Deutsche Telekom Chairman and CEO René Obermann.
Earlier this month, Deutsche Telekom officials denied being in talks with Sprint to carry out a similar merger transaction for T-Mobile, which has reportedly been struggling to compete with much larger rivals AT&T and Verizon Wireless in the U.S. mainland.
Competition to remain healthy in the U.S., maybe not in P.R.
The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal, AT&T said.
For Puerto Rico, it would likely mean the disappearance of yet another wireless carrier, narrowing the field to four players. While it has been said that Puerto Rico has historically had too many wireless carriers, the island’s penetration rate still remains lower than in the U.S. mainland at about 74 percent.
Still, wireless executives have long agreed that competition has been healthy for the Puerto Rico market, which has pioneered pricing packages and options for customers — such as unlimited talk — that have been adopted in the U.S. and other markets.
If completed, it would be the fifth time T-Mobile — which is the latest incarnation of the carrier that began doing business on the island as SunCom Wireless in 1999 — would go through a corporate identity change and the third time it would use the AT&T name. The Federal Communications Commission approved the merger of T-Mobile USA with SunCom Wireless in February 2008.
It remains to be seen whether the FCC will give its go-ahead to the Puerto Rico leg of the deal, as it could constitute a monopoly. When AT&T purchased Centennial, the deal took longer than expected to close precisely because of the local market conditions that it would create. It is likely that the FCC could order Deutsche Telekom to divest the Puerto Rico property, separately from the deal with AT&T. If that were the case, T-Mobile Puerto Rico would either be sold to a third party or shuttered.