Bonn, Germany – Deutsche
Telekom has agreed to sell T-Mobile USA, the nation’s fourth-largest carrier,
to AT&T for $39 billion to create the nation’s largest carrier.
The unexpected
move follows a recently announced plan by T-Mobile to reorganize and
restructure to reverse its poor performance. The carrier’s subscriber base
dropped in 2010 to 33.73 million from 2009’s 33.79 million, and revenues fell
to $16.55 billion from $16.76 billion. Operating profits also fell in 2010.
T-Mobile was also
known to face constraints in expanding its 3G/4G network to take on more 3G/4G
subscribers because it had less spectrum than other carriers.
At the end of
2010, AT&T had 86.2 million subscribers, and T-Mobile had 33.79 million.
Verizon Wireless had 94.1 million subscribers at the end of fiscal 2010. The
figures exclude connected devices, such as e-readers, sold with embedded
cellular modems.
The acquisition
will further consolidate the U.S. cellular market.
Although the
merger must be approved by the U.S. Department of Justice and Federal
Communications Commission (FCC), Deutsche Telekom said it expects the
transaction to close in the first six months of 2012.
Deutsche Telekom
will receive $25 billion in cash and $14 billion in AT&T shares, making
Deutsche Telekom an 8 percent owner of AT&T based on the current stock
price. The transaction values T-Mobile at seven times the carrier’s 2010 adjusted
EBITDA.
AT&T has the
right to increase the portion of the purchase price paid in cash by up to $4.2
billion with a corresponding reduction in the stock component, Deutsche Telekom
said.
Although the
planned purchase is logical for AT&T because both carriers’ networks use
GSM and W-CDMA HSPA + technology, T-Mobile’s 3G and 4G phones operate in the
1.7/2.1GHz bands, whereas AT&T’s 3G/4G phones operate in the 850/1900MHz
bands. Merging the networks will create challenges in migrating consumers from
one set of bands to another.
