From a network and technology perspective, theis a no-brainer, but the companies may have to do some smooth talking to get the deal approved by regulators.
AT&T and T-Mobile USA, which is owned by German phone company Deutsche Telekom, each use the GSM technology and each company plans to deploy the 4G technology known as LTE in the future. AT&T plans to launch its LTE network this summer, and T-Mobile has said in the past that LTE is on its roadmap.
Currently, each company has been upgrading its network to the latest version of 3G wireless technology called HSPA+. (T-Mobile. AT&T, which initially criticized T-Mobile for this, began calling its own HSPA+ network 4G earlier this year.)
The technology synergies between T-Mobile and AT&T are stark contrast to how T-Mobile lined up with Sprint Nextel, which had. Sprint uses a different network technology called CDMA, which is the same technology that Verizon Wireless uses. What's more Sprint is using WiMax for its next generation wireless network.
While regulators would have been much more eager to see No. 3 Sprint Nextel merge with No. 4 T-Mobile so that they could take on No. 1 Verizon Wireless and No. 2 AT&T, the reality is that such a scenario would have been an integration nightmare for Sprint. Sprint is still struggling to make sense of its, which also used a completely different technology.
"There's no question that AT&T and T-Mobile are a very good fit from a technology standpoint," said Charles Golvin, an analyst with Forrester Research. "A Sprint-T-Mobile deal would have given these companies scale, but it made sense from an integration standpoint."
But even though the deal makes sense from a technology standpoint, it won't necessarily be smooth sailing. For one, regulators are likely to scrutinize this deal closely. And secondly, even though AT&T and T-Mobile use the same technology, they use different wireless spectrum bands to deliver their services. This means that AT&T will have to move T-Mobile's customers to different spectrum bands in order to integrate the networks.
First let's look at the regulatory picture. The biggest issue for the FCC and for the Department of Justice, which also needs to approve this merger, is whether a merger between these companies would concentrate too much power in the hands of a single company, which could affect pricing and services for consumers. T-Mobile has always been a price leader. It's safe to say that AT&T will likely not adopt T-Mobile pricing, which means that consumers will be losing a more affordable player in the wireless market.
And the reason is simple. It won't need to. AT&T and Verizon Wireless already control more than 40 percent of the existing wireless market. And T-Mobile, the smallest of the major wireless operators, would concentrate AT&T's market power further. A combined AT&T and T-Mobile would have nearly 130 million subscribers, which is a third more than Verizon Wireless, the No. 1 nationwide player in the country. The new AT&T-T-Mobile would also have twice as many customers as No. 3. Sprint Nextel.
The FCC has already expressed concern over the competitive landscape in wireless. In May the FCC. In its report, the agency said that since 2003, market concentration in wireless has increased 32 percent. The report indicates that 60 percent of the nation's subscribers and revenue come from the country's two largest wireless providers: AT&T and Verizon Wireless. The FCC noted that these companies are continuing to gain customers as other national operators, Sprint Nextel and T-Mobile USA, have been losing subscribers.
So far the FCC hasn't issued a statement regarding the proposed AT&T-T-Mobile merger. But insiders at the agency have said previously that they would be more concerned with an acquisition between AT&T and Verizon Wireless and either Sprint Nextel or T-Mobile USA than a merger involving Sprint Nextel and T-Mobile.
AT&T and Verizon Wireless have scoffed at the FCC's assertion that the wireless industry is not competitive. And the companies have repeatedly pointed to the fact that there are often four to five players in almost every major market in the U.S. Smaller players such as MetroPCS and Leap Wireless have aggressively moved into new markets. And U.S. Cellular, a regional wireless carrier, has gotten high marks in terms of customer satisfaction in many national surveys.
But the fact remains that AT&T and Verizon Wireless have far more customers than any of these smaller players. Indeed, Golvin estimates that a combined AT&T and T-Mobile would mean that three out of four wireless subscribers in the U.S. would be a customer of either AT&T or Verizon Wireless.
What's more, combining AT&T and T-Mobile, means that there would be only one national wireless carrier using the GSM technology. Verizon and Sprint Nextel use CDMA, as mentioned above. This would give consumers, who want to use their phones overseas in places such as Europe, only one choice in national U.S. carrier.
At least one congressional leader is already pushing the FCC and Department of Justice to take a hard look at this deal.
"With every passing day, wireless services are becoming more and more important to the way we communicate," John D. Rockefeller IV (D-West Virginia), chairman of the Senate's Commerce Science and Transportation committee, said in a statement. "So it is absolutely essential that both the Department of Justice and the FCC leave no stone unturned in determining what the impact of this combination is on the American people."
While it is possible that the FCC and/or the Justice Department could simply stop the merger from happening, it's unlikely they'd do that, Golvin said. Instead, it's more likely that these agencies would put conditions on the merger and require AT&T to divest some of its wireless spectrum assets, he added.
"I don't believe this will have a 'yes' or 'no' outcome," Golvin said. "I think what the regulators do will be more about the extent of AT&T's divestiture."
In fact, the FCC took this approach when it approved Verizon's $28.1 billion merger of regional carrier Alltel Wireless, which closed in January 2009. Instead of analyzing this merger on a national basis, the FCC analyzed each individual market where Verizon and Alltel operated. And in markets where there was too much concentration, the FCC required that the Verizon sell those wireless assets. All told, Verizon agreed to sell operations in 105 markets where Alltel also operated.
AT&T CEO Randall Stephenson spoke to the Wall Street Journal on Sunday and said that he is confident that the company will get regulatory approval. He said that the merger will help "conserve spectrum at a time when that resource is in tight supply."
He also said that the wireless market is already very competitive.
"This is probably the most fiercely competitive wireless market in the world," he was quoted as saying. "The majority of Americans have the option of five different wireless carriers."
Regulatory issues may be only one hurdle the companies face as they look at integrating the two wireless networks. While it's true that T-Mobile and AT&T each use GSM technology, the carriers also use different bands of spectrum to deliver their services. Specifically, T-Mobile uses the spectrum it .
AT&T also acquired spectrum in that auction. And it is using this AWS spectrum to build its LTE network. AT&T uses its 850MHz and 1900MHz spectrum to deliver its 3G service. Part of the reason that AT&T wanted T-Mobile in the first place was to get more of the AWS spectrum for its LTE network.
Meanwhile, T-Mobile has no additional spectrum to deploy LTE, since it's been using the AWS spectrum for its 3G service. What this means is that once AT&T and T-Mobile merge, AT&T will have to move all of T-Mobile's existing 3G customers (which includes the supposed 4G HSPA+ customers) to AT&T's 850MHz and 1900MHz spectrum. This means T-Mobile customers will need new handsets, since the existing T-Mobile 3G HSPA and 4G HSPA+ handsets will no longer work on the AWS spectrum.
The migration of additional T-Mobile customers to AT&T's already congested 3G network could also be painful for existing AT&T customers. But Golvin believes that in the long run, AT&T will actually benefit from the merger with T-Mobile because it will allow AT&T to use thethat T-Mobile has put in place to link its radio network to the hard-wired Internet and telephone backbone.
"For some period of time, customers from either network may find that the quality is not what they would like," Golvin said. "But AT&T won't be able to just turn off the T-Mobile network. It will take time and it will be done in stages. I think what might be more painful for some T-Mobile customers is that they were T-Mobile customers because they didn't want to be AT&T customers."
The deal comes just days before the wireless industry meets in Orlando, Fla., for the told All Things Digital that it has dropped out of the panel discussion at CTIA. FCC Chairman Julius Genachowski is also expected to give a speech Tuesday morning from CTIA. It's unclear how much if anything the players involved in the merger will say at CTIA. But CNET will be there, so stay tuned.. On Tuesday morning, CEOs from three of the four major U.S. wireless carriers--AT&T, Verizon Wireless, and Sprint Nextel--will take the stage for a roundtable discussion. T-Mobile USA
Update 7:38 p.m. PT:This story has been updated with information regarding the panel of CEOs at CTIA.