AT&T Inc. (NYSE: T) on Sunday announced it plans to buy smaller rival T-Mobile USA for $39 billion, which would create the largest U.S. wireless carrier and a formidable competitor for current industry leader Verizon Wireless (NYSE: VZ).
AT&T's offer to buy T-Mobile from Deutsche Telekom AG (PINK ADR: DTEGY) is the industry's biggest acquisition since 2004 and combines the industry's second and fourth largest providers. It would add 34 million customers to AT&T's 96 million, giving the newly formed company 43% of the U.S. wireless carrier market and surpassing Verizon's 34% market share.
Sprint Nextel Corp. (NYSE: S), the third biggest U.S. wireless provider, was rumored to be in talks with Deutsche Telekom about purchasing T-Mobile USA. Sprint has struggled in the wireless market behind Verizon and AT&T. The new deal would give AT&T twice as many customers as Sprint.
AT&T not only wants T-Mobile's subscriber base, but also needs the additional spectrum, or airwaves, to expand its network and serve surging demand for video and data content delivery. The new company will also save an estimated $3 billion annually when it eliminates overlapping operations like retail outlets and advertising spending.
"From AT&T's perspective, this is a huge win," independent analyst Chetan Sharma told The New York Times. "It's about being No. 1 and having economy of scale."