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AT&T Buys T-Mobile: What Does It Mean for Consumers?

at&t and t-mobile logosIn the largest deal the wireless industry has seen since 2004, AT&T has agreed to buy T-Mobile USA for $39 billion in cash and stocks. In acquiring T-Mobile from parent company Deutsche Telekom, AT&T will pick up an extra 34 million wireless customers, and will provide service to about 43-percent of all U.S. cell phones, making it the country's largest network operator. At the end of 2010, the company boasted about 95.5 million wireless subscribers -- only slightly more than Verizon's 94.1 million.

In a statement, AT&T chairman and CEO Randall Stephenson heralded the deal as "a major commitment to strengthen and expand critical infrastructure for our nation's future," and predicted that it would "help achieve the President's goals for a high-speed, wirelessly connected America." But the agreement still faces some potentially major hurdles.

Before being finalized, the acquisition must be approved by the FCC and the Department of Justice. Last year marked the first time that the wireless industry failed to meet the FCC's standards for market competition, which may not bode well for a deal combining America's second and fourth largest mobile operators.

Some industry experts have already begun voicing concerns. In a research note published yesterday, Credit Suisse analyst Jonathan Chaplin wrote that he'd "never seen a deal with more regulatory risk be attempted in the U.S." Chaplin added that AT&T may have to make "massive divestitures and concessions" in order to win government approval, and offset the deal's "enormous" regulatory risk.

But Stephenson remains optimistic. "We studied this thing extensively over the last few months and we're very confident it will be approved," Stephenson said. "Most local markets have a choice between five carriers, so the space will remain fiercely competitive." Both companies expect the deal to be finalized within "approximately 12 months."

At this point, the most obvious loser in the deal is Sprint Nextel, which had also been involved in discussions to purchase T-Mobile. If the agreement goes through, Sprint will become the smallest among major U.S. service providers, and, according to Forbes's John Dobosz, may get swallowed up by Verizon.

Not surprisingly, Sprint is openly questioning whether or not the deal can adhere to antitrust regulations. "The DOJ and the FCC must decide if this transaction is in the best interest of consumers," the company said in a statement.

Under the deal, AT&T promises to expand its Long-Term Evolution (LTE) wireless technology to an additional 46.5 million customers, including many in rural areas. Combining its infrastructure with T-Mobile's could also improve service for iPhone users, and likely won't involve too much heavy lifting, since both companies already rely on the same GSM technology.

According to Ars Technica's John Timmer, AT&T seems intent on branding the deal as "a public good," in order to "placate government regulators." By promising to facilitate more widespread broadband access, the company could argue that it's simply helping the Obama administration and the FCC to achieve their own broadband goals. Yet it's unlikely that the prospect of a faster, more expansive network will do much to ease the concerns of consumer advocates.

For some, the mere disappearance of T-Mobile is enough to significantly hurt consumer choice. "T-Mobile has long offered a distinct alternative to AT&T if you wanted a GSM phone," writes CNET's Kent German. "It excelled at customer service, it delivered on value, and it never failed to keep its phones interesting."

Over at GigaOm, Om Malik worries that the list of casualties may extend far beyond mobile subscribers. According to Malik, handset manufacturers, equipment suppliers, and even Google may inadvertently find themselves on the short end of AT&T's acquisition. If the deal goes through, Google "will be beholden to two massive phone companies - Verizon and AT&T - who are going to try to hijack Android to serve their own ends," Malik writes. "Don't be surprised if you see AT&T impose its own will on what apps and service are put on its Android smartphones."

Perhaps the most critical issue, however, is whether or not the deal will hinder competition in the wireless market. Media Access Project, a public interest law firm, argued that the acquisition would "further increase costs and decrease choices for the public," by effectively giving three companies major control over the market. D.C.-based Public Knowledge echoed these sentiments, calling the agreement "unthinkable," and speculating that it will result in "higher prices, fewer choices [and] less innovation."

"It's difficult to come up with any justification or benefits from letting AT&T swallow up one of its few major competitors," Parul P. Desai, policy counsel for Consumers Union, said in a statement. "AT&T is already a giant in the wireless marketplace, where customers routinely complain about hidden charges and other anti-consumer practices."

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