The landscape of wireless vendors in the U.S. is about to get smaller as AT&T is set to get even bigger.
AT&T (NYSE:T) is set to acquire T-Mobile from Deutsche Telekom in a deal valued at $39 billion. AT&T will be paying $25 billion in cash with the remainder paid in AT&T stock to Deutsche Telekom. AT&T expects the deal to close in approximately 12 months. The driving force for the deal, according to AT&T executives is the continued demand for wireless access and next-generation speeds in the United States.
“The President and the FCC have both established as a major public policy initiative to get mobile broadband deployed across the United States,” Randall Stephenson, CEO and President of AT&T said during a morning conference. “If we’re sincere about trying to get there, we believe we have to start thinking different about how we make that possible – this transaction allows that to happen.”
Stephenson added that by putting AT&T and T-Mobile together, AT&T will be able to do something together that neither company could do on their own and that is deploy mobile broadband to 95 percent of the United States. He noted that the deal brings shareholder value as well as driving synergy across both network infrastructures.
Wireless traffic volumes have grown exponentially over the last several years and are expected to continue to do so. Stephenson noted that 2010 wireless volumes on the AT&T network were up by 8,000 percent over the last four years. Going from that point forward for another five years, he expects another eight to ten times growth.
“We have to think differently about how we accommodate this kind of service level growth and that’s what this transaction is about more than anything else,” Stephenson said.
John Stankey, president and CEO of AT&T Business Solutions, noted that a detailed engineering analysis was done prior to the acquisition announcement. The analysis looked at cell towers and coverage to understand the combined potential.
“We know exactly what we think we need to keep,” Stankey said. “It was done with detailed traffic engineering and study analysis, not the back of an envelope kind of thing because there is an awful lot riding on this.”
From a synergy perspective, Stankey explained that both AT&T and T-Mobile cell towers will be dual-banded for both 2G and 3G to support both companies technologies. He added that there will also be open roaming across the two networks.
Bringing next generation LTE wireless to the U.S. is also a key focus for the combined entity.
“The combined network will enable a more robust and ubiquitous LTE deployment to 95 of the U.S. population, 46 million people more than before,” Stankey said.
Merging two wireless networks together is no easy task, but it is one that AT&T already has experience with. Back in 2004, Cingular merged with AT&T Wireless in a $41 billion deal. Ralph de la Vega, president and CEO of AT&T Mobility and Consumer Markets, noted that the merger of Cingular and AT&T was a positive event that reduced customer churn.
“In the first three years after that merger we cut churn by nearly half. Today AT&T total customer churn is an industry leading level,” De la Vega said. “So the short answer is, we know how to do this.”