In a stunning move, AT&T has acquired T-Mobile USA for a whopping $39 billion from Deutsche Telekom. Along with acquiring approximately 8% of AT&T, Deutsche Telekom will also be gaining a seat on AT&T’s board of directors.
The new combined entity, if it can garner regulatory approval, will be largest carrier in the U.S. by leaps and bounds. AT&T and T-Mobile USA combined have over 25% more subscribers now than Verizon (125+ million vs. 93+ million).
This acquisition isn’t about subscriber bases, though; it’s about improving AT&T’s reliability and preparing it for the 4G era of wireless communication.
The Spectrum Problem
AT&T’s press release tells a very clear story of why AT&T bought T-Mobile and why T-Mobile bought AT&T.
It’s no secret that AT&T has a tattered reputation. The iPhone may have brought it millions of new customers and billions in revenue, but the vast increase in data usage has also strained the network to unacceptable levels. There wouldn’t have been so much hype surrounding the Verizon iPhone if AT&T’s network didn’t drop so many calls and upset so many customers.
And while AT&T is investing billions to upgrade its network, it takes years to get the approval to build new towers, especially in metropolitan areas such as San Francisco. Without a dramatic move, AT&T’s network wasn’t going to get better anytime soon.
Two sections of AT&T’s press release are devoted specifically to this problem. It’s a testament to just how crucial this problem is to AT&T’s future. The first problem it addresses is spectrum: The wireless carrier simply doesn’t have enough wireless spectrum to fuel the accelerating growth it has experienced over the last few years.
“AT&T’s mobile data traffic grew 8,000 percent over the past four years and by 2015 it is expected to be eight to 10 times what it was in 2010,” AT&T explained in its announcement. “Put another way, all of the mobile traffic volume AT&T carried during 2010 is estimated to be carried in just the first six to seven weeks of 2015.”
AT&T believes it will take years until more spectrum is opened up by the U.S. government for mobile broadband use. The simplest way to get its hands on precious broadband is through acquisition, and T-Mobile USA has the most GSM broadband spectrum after AT&T.
The Infrastructure Problem
The second problem is infrastructure. AT&T simply can’t build towers fast enough, and the approval process to build the unsightly things acts as a major roadblock to the company’s efforts to boost its network reliability. So if you can’t build towers fast enough, what’s the next best way to get them? That’s right: You acquire them.
“At closing, AT&T will immediately gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets,” AT&T notes in its press release. “The combination will increase AT&T’s network density by approximately 30 percent in some of its most populated areas, while avoiding the need to construct additional cell towers.”
$39 billion is a lot of money to buy some towers, but because T-Mobile USA utilizes GSM technology (rather than the CDMA technology employed by Verizon), it can immediately use them to boost its network. If the deal is approved, expect AT&T to quickly offload some of its mobile data traffic on T-Mobile’s infrastructure.
AT&T may be talking a lot about 4G in its press release, but T-Mobile has no LTE technology or infrastructure to offer. No, today’s acquisition is all about bolstering AT&T’s network and beginning the process of repairing its reputation.