AT&T: T-Mobile Acquisition Good For Us, Good For You

AT&T's proposed $39 billion acquisition of T-Mobile USA will not only bolster network quality and accelerate the growth of 4G Long Term Evolution (LTE) in the United States, but will also improve the country's economy and further the U.S. government's vision of bringing broadband network access to underserved communities, according to AT&T.

That was the message from AT&T CEO Randall Stephenson and several of his top lieutenants, who during a Monday morning webcast laid out how they will prioritize the integration of T-Mobile USA's assets with AT&T's following a successful acquisition of T-Mobile from Deutsche Telekom.

With the proposed deal expected to receive intense scrutiny from the U.S. Department of Justice and the Federal Communications Commission (FCC) -- as well as consumer watchdog groups concerned about consolidation among telco giants -- AT&T also looked to assure investors and government regulators that AT&T has the track record, resources and vision to complete such a blockbuster merger successfully.

AT&T first announced the deal with Deutsche Telekom on Sunday. If approved, the combined entity will boast about 129 million subscribers, versus about 94 million for Verizon and about 50 million for Sprint Nextel, making AT&T the largest U.S. wireless carrier and fundamentally altering the wireless landscape through the combination of its second- and fourth-largest players.

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With voice and data demands expecting to grow astronomically -- AT&T claims its mobile data volumes increased 8,000 percent over the past four years, and predicts eight-to-ten times growth in those volumes over the next decade -- the deal, said Stephenson represents a "very unique opportunity" during a "very unique period of time."

"Now is the time for this transaction," he said. "We think we're at a point where we have to think differently."

By combining AT&T and T-Mobile USA, AT&T will be able to provide wireless broadband service for 95 percent of the population, according to the carrier. It will also improve the quality and consistency of AT&T's network, which in recent years has been roundly criticized for strained and inconsistent service.

"We're going to be able to do something that neither of us could do on our own," Stephenson added.

The $39 billion acquisition, expected to close in about 12 months, would be the largest in the telecom service provider space -- and one of the largest in technology and business -- in some time.

In recent years, telecom mergers and acquisitions have become frequent, from deals between smaller fiber providers to blockbuster agreements like CenturyLink's pending $10.6 billion acquisition of Qwest.

According to The New York Times, Deutsche Telekom had eyed both an IPO for T-Mobile USA, and a potential merger with Sprint, the U.S.' No. 3 wireless carrier. Its discussions with AT&T began in December 2010, according to reports.

Wayne Watts, AT&T senior executive vice president and general counsel, said AT&T expects a thorough review by both the DOJ and FCC, and is prepared to cooperate. AT&T is confident the deal will be approved, he said, because its success would address impending spectrum shortages, help achieve federal policy objectives, create synergy between two dominant network companies and "result in an American company investing in America."

"We are experienced," he said. "We know regulators will focus on the facts. I won't be so presumptuous [as to say] we can anticipate every issue that will arise, [but] we study the law and study the facts."

AT&T executives Monday frequently referenced the 2004 merger of Cingular Wireless with the former AT&T Wireless as evidence of the company's track record with large and potentially cumbersome M&A moves.

The 95 percent coverage number AT&T frequently cited means giving broadband coverage to some 46.5 million more Americans, the telco explained. It also means adequately preparing for demands placed on the network by an explosion of mobile devices, from smartphones and e-readers to tablet computers.

Watts noted that the competition among wireless providers in the U.S. is "vibrant and will only increase," citing not only Verizon and Sprint but also newer, fast-growing players like Metro PCS and Leap, and 4G-specializing market presences ike Clearwire and LightSquared.

NEXT: AT&T Confident In Deal's Approval

According to AT&T, the integration will happen in three stages, starting with the combining of both companies' 2G and 3G networks. The cell splits, noted AT&T executives, are expected to double AT&T's 3G capacity in many areas, and T-Mobile subscribers will get better coverage and also access to AT&T's device portfolio, including Apple's wildly successful iPhone.

The merger will also benefit AT&T's enterprise business customers, noted John Stankey, president and CEO of AT&T Business Solutions, via increases in network efficiency and the expansion of LTE to aid transitions to cloud computing.

AT&T in January said it would begin its LTE network buildout in the middle of 2011, and Stankey noted that projection is on track.

Ralph De La Vega, president and CEO of AT&T Mobility and Consumer Markets, added that the merger would improve the customer experience, reduce customer churn, expand company margins and grow average revenue per user (ARPU).

"We're the one company deploying both HSPA+ and LTE," he said, which gives customers a "more consistent experience on 4G" in the next several years.

More than 65 percent of postpaid sales are smartphones, De La Vega said, and both AT&T's and T-Mobile's numbers are "below the current intake rate."

Richard Lindner, AT&T's CFO, reaffirmed that the transacation is expected to close in about 12 months. The $39 billion number is 64 percent cash, 36 percent in AT&T shares -- about 7 times 2010 Ebitda -- and after completion, Deutche Telekom will claim an 8 percent stake in AT&T, and a seat on AT&T's board. AT&T will assume no debt from T-Mobile or Deutsche Telekom, Langer added, and expects about $7 billion in integration expenses and $2 billion in capital expenditures.

Asked during a question-and-answer session whether the deal would lead to further partnership between AT&T and Deutsche Telekom internationally, AT&T's Stephenson left the door open, describing a "great opportunity" to do some partnering for enterprise business customers and an "effective way" to approach marketplaces.