AT&T Haunted by IPhone Network Load in T-Mobile Merger

AT&T Inc. (T)’s integration of its $39 billion acquisition of T-Mobile USA Inc. may be slowed down by a network already overloaded by users of Apple Inc.’s iPhone, a Sanford C. Bernstein & Co. analyst said.

The deal announced yesterday will give AT&T new airwaves for its planned high-speed, fourth-generation network. T- Mobile’s subscribers, who are now using those airwaves, will eventually be moved to AT&T’s network, the Dallas-based company said on a conference call today.

“That’s probably the most ambitious piece of this,” said Craig Moffett, an analyst at Sanford C. Bernstein in New York who rates AT&T “market perform” and doesn’t own the shares. “That network is already struggling and has been ever since they landed the iPhone, so that network isn’t ready to dump a bunch of T-Mobile customers onto it.”

AT&T expects $7 billion in integration costs over the next three years, said John Stankey, president of AT&T Business Solutions. To free up capacity on the 3G network, used by iPhone customers, for T-Mobile users, AT&T will have to wait until subscribers move to the planned 4G network, a process that may take three to five years, Moffett said.

AT&T was the only U.S. carrier selling the iPhone until Verizon Wireless got the device this year. The smartphone, which downloads music, videos and accesses the Internet, clogged AT&T’s network in some markets, causing dropped calls and hurting customers’ satisfaction ratings.

Integration Plan

Following the deal’s closing, which AT&T said may take a year, the combined company will update its towers to allow customers to use their second- and third-generation phones across both networks, Stankey said. The higher-speed, 4G long- term-evolution network that AT&T plans to build will cover 95 percent of the U.S., the executive said.

All subscribers will see the benefits from the larger network -- which will increase the number of cell sites in the overcrowded New York and San Francisco markets by as much as 35 percent -- within two years, Stankey said. The companies use the same network technologies, which makes the integration easier, he said.

“This is an optimal combination,” Stankey said during the conference call, referring to the technologies. “These things let us plan with more certainty, and it means benefits come faster and the benefits are larger than with any other option.”

AT&T’s agreement to buy T-Mobile USA from Bonn-based Deutsche Telekom AG (DTE) would create the largest U.S. mobile-phone company. The customer transition aside, the integration should be less difficult compared with other acquisitions AT&T has made, analysts including Moffett said.

‘Highly Complex’

“No merger is easy, but this probably would be easier than most,” Moffett said. “You’re still talking about consolidation of two relatively large companies, with very different cultures, each with their own retail store presence, each with their own brand image and customer base. Putting the two of them together is a highly complex task.”

AT&T and T-Mobile in the U.S. use the GSM standard to deliver mobile phone and data service. GSM is widely available in more countries worldwide than the CDMA standard used by Verizon Wireless and Sprint Nextel Corp. (S)

The fact that AT&T and T-mobile use GSM and operate on similar frequencies will make the transition easier than some of AT&T’s past deals, said Charles Golvin, an analyst at Cambridge, Massachusetts-based Forrester Research Inc.

‘Same Network Technology’

“I don’t want to trivialize it, however the two companies do use the same network technology,” Golvin said in an interview. “A T-Mobile phone will work on AT&T’s network today.”

AT&T rose 32 cents, or 1.2 percent, to $28.26 at 4 p.m. in New York Stock Exchange composite trading. The stock has declined 3.8 percent this year. Deutsche Telekom jumped 11 percent to 10.67 euros in Frankfurt trading, the biggest gain since October 2008.

AT&T bought BellSouth Corp. in 2006 for more than $80 billion. The company renamed BellSouth’s Cingular Wireless to AT&T and was forced to agree to price caps, market divestitures and other conditions to appease regulators.

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom in New York at pelstrom@bloomberg.net

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