Saturday, March 19, 2011

AT&T to Acquire T-Mobile USA for US$39 Billion

AT&T has agreed to acquire T-Mobile USA from Deutsche Telekom for US$39 billion.

AT&T said the deal will provide it with an optimal combination of network assets to add capacity sooner than any alternative and that it provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some market.

Specifically, AT&T is looking to increase its density of cell sites in urban areas. The T-Mobile USA facilities would boost its density by 30% in key markets. AT&T estimates it would take 5 years to build these resources on its own.

AT&T also plans to expand and accelerate its push into LTE, committing to reach 95 percent of the U.S. population, or an additional 46.5 million Americans, beyond its current plans – including rural communities and small towns.


As of 31-Dec-2010, AT&T posted a net gain in total wireless subscribers of 2.8 million, to reach 95.5 million in service, the best net gain in the company's history. AT&T added 442,000 iPad- and Android-based tablets to its network, with more than 90 percent of these booked to the prepaid category. Retail net adds for the quarter include postpaid net adds of 400,000 and prepaid net adds of 307,000. Connected device net adds were 1.5 million, and reseller net adds were 595,000. Postpaid churn was 1.15 percent. There were 4.1 million iPhone activations.

As of 31-Dec-2010, T-Mobile USA served 33.73 million customers, down from 33.76 million at the end of the third quarter of 2010 and 33.79 million at the end of the fourth quarter of 2009. In the fourth quarter of 2010, net customer losses were 23,000, compared to net additions of 137,000 in the third quarter of 2010 and 371,000 in the fourth quarter of 2009. Contract customers were the primary driver for the sequential and year-on-year change in net customers. Contract churn was 2.5% in the fourth quarter of 2010, up from 2.4% in the third quarter of 2010 and consistent with the fourth quarter of 2009.

"This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation's future," said Randall Stephenson, AT&T Chairman and CEO. "It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people. Mobile broadband networks drive economic opportunity everywhere, and they enable the expanding high-tech ecosystem that includes device makers, cloud and content providers, app developers, customers, and more. During the past few years, America's high-tech industry has delivered innovation at unprecedented speed, and this combination will accelerate its continued growth."

Deutsche Telekom will receive 25 billion US-Dollar in cash and 14 billion US-Dollar in shares of AT&T. AT&T has the right to increase the portion of the purchase price paid in cash by up to 4.2 billion US-Dollar with a corresponding reduction in the stock component.

The merger will require approvals from the U.S. Department of Justice (DoJ) and the FCC. The companies hope to complete the deal in the first half of 2012.

Deutsche Telekom plans to use approximately 13 billion Euro of the proceeds to reduce its debts.

Deutsche Telekom Chairman and CEO René Obermann said, "After evaluating strategic options for T-Mobile USA, I am confident that AT&T is the best partner for our customers, shareholders and the mobile broadband ecosystem. Our common network technology makes this a logical combination and provides an efficient path to gaining the spectrum and network assets needed to provide T-Mobile customers with 4G LTE and the best devices. Also, the transaction returns significant value to Deutsche Telekom shareholders and allows us to retain exposure to the U.S. market."

The number of AT&T shares issued will be based on the AT&T share price during the 30-day period prior to closing, subject to a 7.5 percent collar; there is a one-year lock-up period during which Deutsche Telekom cannot sell shares. The cash portion of the purchase price will be financed with new debt and cash on AT&T's balance sheet.

In January 2011, AT&T announced plans to accelerate its LTE rollout with the goal of launching initial service by mid-year 2011 and substantially completing the network by year-end 2013. AT&T's mobile broadband strategy calls for both HSPA+ and LTE.

The company has already completed its deployment of HSPA+ to virtually 100 percent of its mobile broadband network. The network upgrade program calls for faster rollout of Ethernet + fiber backhaul and AT&T now expects that nearly two-thirds of its mobile broadband traffic will be on expanded backhaul by year-end 2011.

In an investor presentation at the Citi Annual Global Entertainment conference, John Stankey, President and CEO, AT&T Business Solutions, said that CAPEX at the company would remain relatively constant as a percentage of revenue (mid-teens) but that the accelerated LTE deployment means that some spending will be brought forward. The "tail-end" of the Uverse build means that more money can now be spend on wireless infrastructure and mobile broadband -- therefore a higher percentage of CAPEX will be devoted to wireless, while the company continues to look for synergies in its wireline and wireless backbones.

Regarding bottlenecks in its existing 3G network, Stankey said supply chain issues in procuring radio access network (RAN) equipment finally appear to be alleviated and that the company is now moving ahead with upgrade projects as quickly as it can. However, some projects, such as downtown San Francisco, are delayed by zoning and permitting requirements, while other sites, such as sports stadiums, are delayed by property owners.

Some key points from AT&T's Developer event at CES in Las Vegas:

  • AT&T is delivering 6 Mbps downlink speeds on its HSPA+ network where Ethernet backhaul is in place.

  • AT&T plans to introduce 20 4G devices by the end of the year, some on an exclusive basis. This will include more than 12 new Android devices in 2011. AT&T expects to offer two 4G smartphones in Q1 2011.

  • AT&T plans to launch two 4G tablets, including its first LTE tablet, by mid summer. Additional LTE tablets are planned for the second half of 2011.

  • AT&T is offering Wi-Fi access at more than 125,000 hot spots.

  • AT&T will launch an HTML-5 development kit. The company has also inked an agreement with Open Feint to offer a social gaming platform that can work across wireless networks. The agreement opens API's for the popular Open Feint social gaming platform for AT&T smartphones.

"AT&T is the only U.S. company committed to both HSPA+ and LTE technologies. Today our customers are benefiting as we repeatedly increase speeds on our mobile broadband network. As we accelerate our LTE network build, our customers will have blazing fast LTE speeds and when they go off LTE, they will still have faster mobile broadband speeds with HSPA+ -- something our competitors will not be able to match," stated Ralph de la Vega, president and CEO of AT&T Mobility and Consumer Markets. http://www.telekom.deAt a separate investors' conference in January 2011, Deutsche Telekom CEO Rene Obermann predicted that T-Mobile USA would return to growth this year and increase its revenue by $3 billion by 2014. The plan called for T-Mobile USA to become much more aggressive in mobile data services as it positions its HSPA+ network against LTE and WiMAX. It currently ranks as the fourth largest mobile operator in the U.S.

T-Mobile's HSPA+ network is currently available in 100 major metropolitan areas across the U.S., reaching approximately 200 million people nationwide. It currently supports peak downlink rates of 21 Mbps and an upgrade to 42 Mbps will occur this year. The company enables it claim the "4G" moniker and compete against Verizon's LTE.

One example is the newly-announced, T-Mobile exclusive, Samsung Galaxy S 4G -- its first smartphone capable of delivering theoretical peak download speeds of up to 21 Mbps. The phone is powered by Android 2.2 (Froyo) and features a Super AMOLED touch screen display. T-Mobile calls it the "fastest smartphone running on America's largest 4G network."

Some other points of interest presented at the event:

  • T-Mobile USA believes it has sufficient spectrum for the next few years. It will look to acquire more spectrum in the long-term, possibly 2014 or 2015, from auctions (700 MHz AWS) or from the secondary market. It might also look for partners.

  • Backhaul is competitive advantage for the company. It also nearly 75% of sites on fiber already and this number will climb to 87% by Q3.
    Growth in the U.S. market will come mostly from mobile data.

  • T-Mobile's growth strategy calls for "affordable" data services, a focus on both consumers and business, and better customer support.

  • Its first 4G tablet is expected this Spring.

  • No comment on the selling the iPhone, instead it will "go big" with Android.
    The company currently has 34 million subscribers.

  • T-Mobile USA expects to save $1 billion in operational costs through "process reinvention." This include Zero Waste (moving to eBills, reducing handset return rates), Self-Service Automation, Simplifying products, and Network Efficiencies (transitioning 100% to all-IP, roaming overbuilds).