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AT&T plans to acquire T-Mobile

$39b deal may mean less customer choice

By Erin Ailworth and Hiawatha Bray
Globe Staff / March 21, 2011

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AT&T Inc. said yesterday that it will buy T-Mobile USA from Deutsche Telekom AG in a cash-and-stock deal valued at $39 billion — a partnership sure to face fierce regulatory scrutiny because it could reduce competition between national wireless carriers and boost prices for consumers.

If the merger is approved by regulators, it would make AT&T the largest cellphone company in the country but leave 75 percent of cellphone subscribers in the hands of two carriers: AT&T and Verizon Wireless, which was the number one provider of mobile service in December, according to comScore Inc., a research firm.

It also raises questions about Sprint Nextel Corp, a struggling national carrier that, analysts said, had been rumored to be in talks with T-Mobile. In December, Sprint was the number four US mobile service provider.

“Consumers will have less leverage in that they will have less choice,’’ said Noah Elkin, a principal analyst with eMarketer Inc., a digital marketing research firm in New York. “People could always pay less if they wanted to, going to T-Mobile. If you remove T-Mobile from the equation, that only leaves Sprint.’’

US Representative Edward J. Markey, the Malden Democrat who held top spots on the House Energy and Commerce Committee’s Subcommittee on Telecommunications for more than two decades, said Congress should conduct hearings on the merger.

“While AT&T and T-Mobile have determined that the merger is in their corporate interests,’’ he said in a statement, “it should also be in the public interest.’’

Yesterday, AT&T was pushing its case for acquiring T-Mobile, saying in a statement that the addition of the smaller carrier would help it reach goals set by the Federal Communications Commission and the president to reach more rural communities and small towns.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,’’ said Randall Stephenson, AT&T chairman and chief executive. “With additional spectrum and network capabilities, we can better meet our customers’ current demands, build for the future, and help achieve the president’s goals for a high-speed, wirelessly connected America.’’

Elkin said he viewed the company’s emphasis on rural communities skeptically.

“By focusing some of the attention on the rural telecom subscribers, which after all is a federally mandated requirement for telecom companies, I think they’re trying to provide the FCC with greater impetus to approve a deal that would otherwise run afoul of consolidation rules,’’ Elkin said. “Essentially creating a duopoly in the market is something to consider. Historically, this hasn’t benefited customers.’’

Michelle Faulkner, a marketing consultant in Reading, is a T-Mobile subscriber, and said she would be unhappy to lose a reliable service that is less expensive than what AT&T and Verizon offer. If the AT&T acquisition is approved she would switch to Verizon. Ten years ago, Faulkner was an AT&T customer, until poor customer service led her to switch carriers. “I swore I would never go back to AT&T even after the iPhone came out,’’ she said. “And I am an Apple person.’’

Charles Golvin, a telecommunications analyst with Cambridge-based Forrester Research, said many of T-Mobile’s 33.7 million customers are apt to feel the same way.

“They may feel unhappy about being foisted off on a provider they might not have chosen,’’ he said, adding that many of them may have to buy new phones.

The partnership is not a done deal, and nothing will immediately change for T-Mobile customers. Analysts and AT&T said they expect a lengthy regulatory review. It could take up to a year to close the proposed merger.

AT&T, with 95.5 million mobile and data customers, would pay about $25 billion in cash to Deutsche, with the rest in AT&T common stock. Both companies’ boards have approved the deal.

AT&T needs to acquire T-Mobile to expand its capacity to handle its recent growth, said Jeff Kagan, a telecommunications industry analyst. “They’ve been growing like crazy [and] ever since they got the iPhone, they have had data logjams,’’ Kagan said. “They need more capacity. They need more ability to deliver to customers.’’

This deal, Kagan said, could help AT&T improve its service. That could help customers, who probably will benefit from investments in the network that AT&T is almost certain to make. But, Kagan said, the merger could have drawbacks: possible layoffs for T-Mobile employees working in the same area as AT&T staff.

Erin Ailworth can be reached at eailworth@globe.com; Hiawatha Bray at h_bray@globe.com.

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