In an effort to improve its service AT&T announced Sunday it will buy out its rival T-Mobile USA. The deal is estimated to be worth $39 billon. AT&T makes the purchase to be able to improve it slow Internet access, reduce dropped calls, and provide better coverage of its wireless network.
If government regulators approve the acquisition, the combined company would become the largest cellphone provider in the U.S. Some industry critics said the combination would lead to higher prices for consumers since T-Mobile's rates tend to be lower than those of AT&T or Verizon, the current No. 1 wireless carrier. And it comes as AT&T faces growing pressure from smartphone users, especially those with iPhones, who have long been frustrated with their service. Consumers have a choice since Verizon recently started selling the iPhone 4.
T-Mobile itself tapped into that dissatisfaction with a series of taunting commercials -- featuring a young woman in a pink and white dress mocking AT&T-encumbered iPhone users -- that have resonated with irritated customers in San Francisco, where a few thousand smartphone users on The Embarcadero can swamp AT&T's network.
The boards of Deutsche Telekom AG, which owns T-Mobile USA, and AT&T have already approved the merger, which would give AT&T 129 million subscribers and control of about 43 percent of the American cellphone market. It would also leave Verizon and Sprint as the only other carriers with national networks -- all reasons the acquisition is sure to receive intense scrutiny from the Federal Communications Commission, which has been trying to promote increased competition in the industry.
In a conference call with the Mercury News and five other news outlets, AT&T Chairman and CEO Randall Stephenson said the proposed deal -- the first blockbuster acquisition since the recession was declared over last year -- was driven by the explosive growth in the use of smartphones. AT&T's mobile broadband traffic has risen 8,000 percent in the past four years, and it needed a way to expand its network.
The company figures an additional 46 million customers will gain access to AT&T's 4G mobile network when it begins to roll out later this year.
Putting the two networks together would boost network capacity in most urban areas.
Despite its commercials, there is some debate about whether the service T-Mobile currently provides is truly 4G. The GSM technology the two companies use is basically the same, which is why they chose each other in the first place. But T-Mobile offers usage plans that are considerably less costly than AT&T's, and often come without the requirement of a two-year commitment. AT&T acknowledged that T-Mobile customers pay significantly lower prices than AT&T's, which they said the company hopes to change by herding more T-Mobile customers toward its more expensive smartphone plans. But they noted that previous combinations, such as Verizon's acquisition of Alltel in 2009, have resulted in lower prices. But critics said the opposite will happen because of less competition.