In what can only be called a ground breaking business transaction, today Deutsche Telekom, the German parent company of T-Mobile USA, the 4th largest cellular wireless company in the United States, has agreed to sell their American branch to AT&T for a cool $39 Billion. This is one of the most significant changes in the US telecom market since AT&T’s merger with BellSouth in 2006 and the greatest change in the wireless market ever. With this, AT&T will now become the largest cellular service company in the US by a huge margin. The company will encompass over 130 million customers, against Verizon’s 93 million. In addition, this merger will make AT&T the only supplier of GSM cellular service in the continental United States – a de facto monopoly.
The reasons for this merger are many but can be attributed primarily to the less than stellar performance financially for T-Mobile, which has struggled against larger CDMA companies like Sprint and Verizon, and the poor network performance of AT&T. As the only other supplier of GSM cellular service in the US, T-Mobile was an obvious choice for an acquisition. Taking over T-Mobile’s towers is a painless process for AT&T, and allows for a massive increase in capacity and coverage redundancy in many high-traffic markets. AT&T building out this infrastructure by themselves would have taken over 5 years according to the company’s press release today. This massive increase in capacity and redundancy is a big win for AT&T which desperately needs to improve their network fast.
In that capacity, this is a great, though expensive move for AT&T. The company has been struggling with pretty terrible reliability in 3G coverage against Verizon, mostly because traffic on AT&T’s network has saturated their network throughly. T-Mobile provides native expansion of the existing GSM/GPRS/EDGE technology on the same 850/1900Mhz spectrum. The only issue that will arise is adapting 3G. T-Mobile uses the AWS spectrum for their UMTS/HSPA/HSPA+ network, which operates on the 1700Mhz and 2100Mhz frequency spectrum. transferring T-Mobile’s 3G network back to 850/1900Mhz is not a terribly difficult problem, but it does raise major radio incompatibility issues for existing T-Mobile customers.
That incompatibility is the big question mark for this merger. Existing T-Mobile customers needs to be able to access their network without hardware radio changes. As of now, most AT&T quad band phones support 850/900/1800/1900Mhz radio spectrums, as these are the most popular GSM frequencies in the US and Europe. Pentaband phones exist in small quantities but honestly we’re looking at a future where hexaband phones could be necessary, supporting 850/900/1700/1800/1900/2100Mhz frequencies. The reason for this ridiculous amount of baseband diversity is because T-Mobile customers will still need access, which means AT&T needs to support the 1700Mhz and 2100Mhz frequency bands. But if AT&T wants to improve their 3G coverage for existing AT&T customers, they’re going to have to get T-Mobile’s 3G on their spectrum. Maybe this can be solved by on the cell tower side, I’m honestly not sure, but the point is that this is a compatibility issue to deal with.
Now the question is whether we have a monopoly here. I’m not usually one for market dominance by one entity, I like competition a lot. However, the US cellular market is a pretty big, garbled, bloated mess as it is. 4 major companies are frantically trying to build out all these competing networks that never seem up to snuff and it is obnoxious to see little progress (especially when you are an AT&T customer). So if T-Mobile moving to AT&T creates a powerful, unified and reliable GSM network in the US, maybe that’s not a bad thing. This country desperately needs to improve its wireless broadband infrastructure and maybe this is the answer: consolidation instead of fragmentation. The Justice Department might block this merger for being anti-competitive, but if it goes through we might gain quite a bit from it. AT&T for one gets a lot of extra network and some awesome phones to boot. T-Mobile customers get far more ubiquitous coverage (they are on the smallest network after all) and AT&T customers finally, hopefully, get reliable coverage.
The last question mark is 4G. T-Mobile has already rolled out a fast HSPA+ network, which will no doubt be rolled into AT&T’s small existing network on the same technology. This should accelerate the glacial progress AT&T has made in this area. Also, for T-Mobile customers, they now have a clear roadmap to LTE, something that T-Mobile had no plans to adopt. AT&T is also in a position to leverage the AWS spectrum as a supplement to the 700MHz LTE network they are building. Again, more frequency chaos but good for redundancy.
Still, there is a big chance this won’t go through government approval, and in that case AT&T has to make some network concessions to T-Mobile. Guess we’ll have to see what happens.
PS, look on the bright side T-Mobile: iPhones!!