AT&T, T-Mobile Mega-Merger Face Major Legal Barriers

AT&T has agreed to buy rival T-Mobile in a $39 billion mega-deal that would make it by far the largest mobile operator in the United States. But it appears the company may have to make some major concessions to keep regulators happy and even then the red tape could delay the takeover by as much as a year.

At the moment, AT&T has 95 million customers, putting it in second place behind Verizon (which has approximately 101 million customers). The addition of 33 million T-Mobile customers would change those rankings and give AT&T a market share in the range of 40 per cent.

That number, and the fact that this is a merger between two of the four major cellphone networks, is certain to attract the interest of the Federal Communications Commission (FCC).

Critics Fear Mega-Merger Will Hurt Competition

The main fear in this type of merger is the lack of competition, particularly in those areas where AT&T and T-Mobile are currently the only two providers.

It's not just a matter of price: in areas where AT&T would become the only major player, it would have much less incentive to invest to make sure coverage, call quality and data capacity were as high as possible.

One theory is that officials may themselves get into negotiations over the takeover. For example, they might decide that as a condition of getting approval for the deal, AT&T would have to spend its own money to extend mobile coverage to rural areas where there aren't necessarily enough residents to make such network expansion profitable.

It might also be ordered to allow local companies to make use of its data networks; for example, to offer mobile broadband services. (Source: bloomberg.com)

Another possibility is that the company may be forced to sell off some of its assets. That's already got financial analysts concerned, including the ratings agency Moody which says it may downgrade its risk rating of AT&T (meaning it's considered more risky).

While that's in no way a suggestion that there's any serious danger of the company defaulting on debts, it could mean it pays a higher price to get financing through measures such as corporate bonds. (Source: wsj.com)

Common System Type Could Aid Merger

There are some factors that may help AT&T's case.

The main one is that both AT&T and T-Mobile use the same system for cellphone networks (GSM), as opposed to that used by Verizon and Sprint (CDMA). This means that with comparably little engineering work the merged company could immediately combine the coverage of its networks, meaning existing customers would be able to use their phones in more places.