In a move that is expected to have several implications for the wireless network industry in the US, AT&T has agreed to purchase Deutsche Telekom’s (DT) US arm T-Mobile for a whopping $39 billion in cash and stocks.

The two companies expect the deal to close within 12 months. In fact, as proposed by AT&T, the merger plan specifies stiff penalties if the deal is not completed within a year. AT&T may have to pay $3 billion to DT and, more importantly, may lose valuable spectrum.

The proposed merger, however, needs clearances from the telecom regulators. Given the regulatory complexities, analysts say that the deal is unlikely to close within a year.

The Federal Competition Commission and the Department of Justice, which are conducting the due diligence of the proposal, may take time in giving their approval as the deal, according to analysts, can change the contours of the US wireless industry.

If the deal goes through, it will concentrate 80 per cent of US wireless users in just two companies – AT&T/T-Mobile and Verizon Wireless.

At present, the country has four large mobile operators – AT&T, Verizon Wireless, T-Mobile and Sprint Nextel – accounting for 82 per cent of the national wireless market. Of these, Verizon and AT&T are the largest with a combined market share of over 70 per cent.

On completion of the deal, AT&T will add T-Mobile’s 34 million users to its 96 million subscribers (as of end-2010), which will make it the largest telecom company in the US and take it ahead of rival Verizon, which has a subscriber base of 100 million.

In other words, post the merger, AT&T will have a 43 per cent share in the US wireless market while Verizon will have a 35 per cent share. This probable duopolistic situation in the mobile market space has sparked objections from various quarters since the announcement of the merger plan. Analysts and industry experts have expressed their concern over the amount of power and influence the merged entity would hold, given that the two companies would virtually control the wireless landscape, which may not be in the best interest of users.

Sprint, third in the telecom pecking order, wedged between the bigger and the bit players, is ready to pick up the cudgels against the proposed merger. It has urged the regulators to block the deal as it is against consumer interests.

Critics point to the fact that  in the mid-1970s, the government started investigating AT&T’s dominant position in the fixed line business, which led to the break up of “Ma Bell” into eight pieces in 1984. If this deal goes through, it would be like reversing almost three decades of efforts by the US government and courts to modernise and open up the country’s telecom sector to competition, job creation and investments.

AT&T, however, claims that the merger would not reduce market competition. “The US wireless market is very competitive with five or more competitors in 18 of the country’s top 20 markets,” AT&T said in a statement. The deal is very attractive for the operator. It would give it access to more tower and cell sites than it could build in the next five years. AT&T also stands to gain more spectrum to offer new services, especially with the use of smartphones, tablets and notebooks equipped with wireless broadband expected to pick up in a big way.

Also, according to analysts, the acquisition would enable AT&T to effectively eliminate a significant price card player from the mobile market – T-Mobile is known to offer a wide range of flexible service plans including some of the lowest-priced data services. 

Whether AT&T gets the go-ahead for the deal or not, the experience will be useful in ensuring transparency in proposing guidelines for Indian merger and acquisition regulations, which are being drafted by the Telecom Regulatory Authority of India.