AT&T swallows T-Mobile to create US' largest carrier

In recent months, T-Mobile advertising has been laying into AT&T, criticizing the carrier for hobbling a hot phone with slow network speeds. Either that was a form of flirting, or AT&T decided it needed to silence those commercials once and for all. Today, AT&T announced a $39 billion deal with T-Mobile’s parent company, Deutsche Telekom, that will see T-Mobile’s customers and infrastructure become part of AT&T, creating the US’ largest cellular carrier, and the only one to offer GSM phones.

For Deutsche Telekom, the deal solves a lot of the problems that T-Mobile faced as the fourth-largest carrier. It no longer has to maintain a large network and retail infrastructure to support a smaller carrier base, and won’t face the enormous cost of upgrading that infrastructure to the coming LTE 4G standard. T-Mobile was the only one of the big carriers not to have a clear 4G plan in place; AT&T and Verizon have committed to LTE, while Sprint has been pushing WiMax.

See our analysis of the deal: Higher prices, fewer choices if AT&T swallows T-Mobile
Internet explodes with snark, anger, despair over T-Mobile’s sale

But what about the 4G speeds T-Mobile has been advertising? Those come courtesy of HSPA+, an improved form of current technology that provides maximum speeds of 84 Megabits/second, a touch slower than LTE’s 100Mbps, but significantly faster than vanilla HSPA. Still, the enhanced speed seemed to offer bragging rights over AT&T, which has yet to launch its LTE network.

Except AT&T has also made the upgrade to HSPA+ in some areas; it’s just not advertising itself as offering 4G, presumably to avoid consumer confusion when it starts releasing LTE devices. Bewildered yet? It gets worse. Even though it’s not promoting it in its advertising, AT&T’s website lumps HSPA+ and LTE in the 4G category.

In any case, the merger will give AT&T access to more HSPA+ infrastructure, which will undoubtedly help it roll out faster speeds more quickly; the increased backhaul from the cellular antennas and added spectrum will also help the carrier as it rolls out LTE.

In the press release announcing the deal, AT&T took pains to point out that it would act as a public good. According to the company, the transaction will ensure “a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the US population to reach an additional 46.5 million Americans beyond current plans—including rural communities and small towns.” In other words, since it’s got T-Mobile’s infrastructure anyway, it’ll now use it to provide LTE services to millions of customers it wouldn’t have bothered with previously.

That language is undoubtedly there to placate government regulators; the release also devotes two paragraphs to describing why the deal won’t harm competition. Closer to the truth is the statement’s recognition that the deal “provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some markets.” AT&T also notes that it would have taken it five years to build new cell towers that provide the equivalent density that it’s getting by adding T-Mobile’s.

What’s in it for Deutsche Telekom? Although the company is a huge presence in Europe, its US arm has struggled to gain traction against Verizon and AT&T, and was faced with the prospect of giving up or doubling down: invest in the infrastructure needed to offer LTE and its successors, or accept that it would fall behind the competition. By giving up on the US, Deutsch Telekom will get a healthy $25 billion in cash, and end up with about an eight percent stake of AT&T.