AT&T: Buying T-Mobile speeds LTE shift in U.S.

Facing regulatory scrutiny, AT&T argues that buying T-Mobile USA will bring next-gen mobile networks to more Americans and help make the United States more competitive.

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AT&T CEO Randall Stephenson at Mobile World Congress 2011 Stephen Shankland/CNET

AT&T, facing major regulatory scrutiny of its $39 billion plan to acquire T-Mobile USA, is making the case that the deal will improve the fortunes of the United States and its citizens.

In a conference call today with analysts and press, AT&T Chief Executive Randall Stephenson and other company executives repeatedly argued that the deal would mean more U.S. citizens would get next-generation wireless technology called LTE, that they'd get it sooner, and that the country would reap rewards as a result.

"This is a major investment and commitment by a U.S. company to advance U.S. leadership in mobile broadband. It's the beginning of shift to build a powerful LTE network that will be the critical infrastructure" in the future economy, Stephenson said. "It puts towns and states on a level playing field to compete for jobs...This infrastructure will be a competitive advantage for the U.S. for many years to come."

And with the T-Mobile USA acquisition, "We'll reach 95 percent of the U.S. population" with LTE, Stephenson added, helping the country reach its National Broadband Plan goals. "That's a level neither company would reach on its own."

Regulatory barriers are a major challenge for the acquisition. Playing the patriotism card indicates that AT&T--a company that antitrust regulators once broke up into several "Baby Bells" in the wire-line telephone era--is making its case not just to the antitrust authorities at the Justice Department and Federal Communications Commission but also to federal legislators.

AT&T projects wireless data sent over its network to grow by a factor of 8 to 10 in the next five years.
AT&T projects wireless data sent over its network to grow by a factor of 8 to 10 in the next five years. AT&T

AT&T expects to prevail over any antitrust concerns, convincing the DOJ that there's strong competition in local markets and the FCC that the acquisition "is in the public interest" through reaching rural customers and improving national competitiveness, said D. Wayne Watts, AT&T's general counsel.

"Eighteen of the 20 largest markets in the U.S. have five or more competitors today," he said, calling attention to not just to top competitors such as Verizon and Sprint but also to Leap Wireless, MetroPCS, LightSquared, and regional players that he said are aggressive, expanding, and gaining market share.

But AT&T might not get all of what it would like. When Verizon Wireless acquired Alltel in 2008, the DOJ required Verizon to divest assets in 22 states where the two companies overlapped.

AT&T worked to convince customers and shareholders of the merits of the deal, too.

For those who subscribe to AT&T or T-Mobile today, the company promised better service.

AT&T's mobile network carries about 80 times more data now than four years ago, and growth will continue by another factor of 8 to 10 in the next five years to reach 150 petabytes per month. The new growth is fueled by smartphones, tablets, and cloud-computing services on the Net, Stephenson said.

AT&T said acquiring T-Mobile would let it reach rural areas it previously wouldn't have reached.
AT&T said acquiring T-Mobile would let it reach rural areas with the next-generation LTE network that it previously wouldn't have reached. AT&T

"Every time we increase speeds, usage has jumped. Every time we opened up access to content, usage has jumped," Stephenson said. Now, "it's a quantum leap on both horizons. We're doing both of these at the exact same time. Very soon you can expect every business process, your systems in your home or car, your appliance, your personal data--everything is going to be wirellessly connected.

"The challenge is going to be enormous," he added, implying that iPhone users and other AT&T customers who've been unhappy with the company's network would only grow unhappier without the T-Mobile USA acquisition.

T-Mobile USA will let AT&T improve coverage in urban areas where more cell base stations will be in service and increase the breadth of LTE deployment to places that previously wouldn't get anything.

The acquisition would "increase our capacity in some of our most densely populated areas by 20 to 40 percent," said John Stankey, CEO of AT&T Business Solutions.

In addition, it will let AT&T expand faster because it can use existing T-Mobile cellular base stations rather than go though the slow process of acquiring new sites, he said. In some areas, though, AT&T will reduce the number of base stations where there is redundancy.

"The acquisition will bring benefits to some customers within a year of closing and to all customers within two years of closing," Stankey said.

Ralph de la Vega, CEO of AT&T Mobility, predicted business benefits for AT&T shareholders.

One big one: an increase in average revenue per user, or ARPU. Part of that would come from selling smartphones, with their higher service plans, to T-Mobile customers less likely than AT&T customers to have them already, he said. He also predicted better business by lower "churn," the loss of customers to rivals.

And of course, there's cost-cutting. The combined company would have a lower total advertising budget than the two companies have independently, will "rationalize" retail stores (in other words close some where there's overlap), won't have to spend as much on acquiring new customers, and will have lower administrative expenses, de la Vega said.

Chief Financial Officer Richard Lindner said there will be a price to pay up front, however: $7 billion in integration costs and $2 billion in capital expenses.

"Those costs will be offset quickly by sustained synergy benefits," he hastened to add, referring to cost savings and new revenue resulting from the merger.

One big one: less need to purchase expensive swaths of wireless radio-frequency spectrum: Acquiring T-Mobile will mean "reduce future outlays in wireless spectrum and capital," Lindner said. AT&T plans to use some of T-Mobile's current wireless spectrum for the future LTE expansion.

The overall result: AT&T expects earnings per share to diminish somewhat in the first two years after the acquisition, but then to be larger after that, Lindner said.

Updated 7:09 a.m. PT, 7:29 a.m. PT, and 7:52 a.m. PT with further comments from AT&T.