Acquisition of T-Mobile USA by AT&T

In its April 21 filing at the Federal Communications Commission, AT&T describes its purchase of T-Mobile:

AT&T will buy all T-Mobile USA stock from Deutsche Telekom for $39 billion. Deutsche Telekom will receive $25-$29.2 billion in stock and the remaining balance in AT&T stock. Deutsche Telekom will receive a 5-8 percent equity ownership interest in AT&T. Deutsche Telekom will get to nominate one director for election to the AT&T board.

The cash portion of the purchase price will be financed with new debt and cash on AT&T’s balance sheet. AT&T will borrow up to $20 billion for the purchase. AT&T assumes no debt from T-Mobile USA or Deutsche Telekom.

AT&T is a US-based provider in the United States of wireless, Wi-Fi, high-speed Internet, local and long distance voice, mobile broadband, and TV services. It also provides worldwide wireless coverage and IP-based business communications services. In 2010, AT&T had 96 million wirrless subscribers -- approximately 31 million smartphone users -- and had $53.5 billion in wireless service revenues.

As AT&T begins to deploy LTE services on its AWS and 700 MHz bands, it must continue to support services on the 850 MHz (cellular) and 1900 MHz (PCS) bands for the tens of millions of its customers using two older standards: 1) the 2G GSM standard, and 2) the UMTS standard, enhanced with different types of High Speed Packet Access (“HSPA” and “HSPA+”) technology, which permit increased download and upload speeds. Significantly, those customers’ handsets, purchased over many years, are designed for particular standards and frequency bands, and they will not work with newer technologies or on other bands.

• AT&T will need to continue dedicating much of its spectrum to supporting these legacy GSM and UMTS services.
• AT&T projects that it will need to continue devoting 850 MHz and 1900 MHz spectrum to GSM subscribers well into this decade, given the time it will take for AT&T to expand its UMTS network and migrate its GSM subscribers to UMTS or LTE services.
• To support UMTS services, AT&T uses one or more 10 MHz “carriers” of 850 MHz or 1900 MHz spectrum, each consisting of paired 5 MHz blocks of spectrum. AT&T will need to deploy more carriers in the near future, even if doing so squeezes its GSM spectrum allocation and compromises GSM service quality.
• AT&T expects it will need to continue to allocate spectrum to UMTS services for a longer period than AT&T needs to continue allocating spectrum for GSM services

Absent a solution to AT&T's spectrum capacity crunch, AT&T’s customers would face a greater number of blocked and dropped calls as well as less reliable and slower data connections. And in some markets, AT&T’s customers would be left without access to more advanced technologies.

AT&T plans to cover more than 250 million people with LTE service by the end of 2013. But in some markets, AT&T says it lacks the AWS or 700 MHz spectrum it needs to deploy LTE at all, while T-Mobile USA has at least 20 MHz of AWS spectrum. In other markets, AT&T says it average spectrum holding is insufficient to permit deployment of the most spectrally efficient LTE services, whereas the combination of AT&T’s and T-Mobile USA’s spectrum will address the situation.

T-Mobile USA is a national provider of wireless voice, messaging, and data services capable of reaching over 293 million Americans. T-Mobile served 33.73 million customers at the end of the fourth quarter of 2010. T-Mobile's revenues for 2010 were $21.347 billion. The company's spectrum licenses were valued at $15.282 billion in 2010. (see http://www.t-mobile.com)

AT&T says T-Mobile USA faces spectrum constraints of its own, despite its substantial investments in spectrum and network facilities. And T-Mobile USA has “no clear path” to LTE. T-Mobile USA has already dedicated its current spectrum to UMTS/HSPA+ and GSM technologies. As a result, T-Mobile USA “does not have access to the spectrum needed to deploy LTE in an economically and technically sustainable fashion.” Even in areas where T-Mobile USA could try to “refarm” its existing spectrum to make room for LTE, it would face serious competitive disadvantages.