AT&T said it would turn over the airwaves, or spectrum, along with $3 billion in cash to T-Mobile parent Deutsche Telekom AG after pulling out of the deal as opposition mounted from the FCC, Justice Department, state attorneys general and rival carriers.

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So just what is he going to do?

Well, some of the details are still being worked out. But Humm said a big part will be continuing with the “value plans” that the company introduced last year. Those plans, which offer lower monthly rates to those who forego a device subsidy, can indeed save many customers money, but they are also complicated to make sense of.

“I think it’s more complicated because it means you separate out the handset from the rate plan,” Humm said. “On the other hand, it is more honest. It is a way for customers to optimize based on what they need.”

Humm notes that some customers want a big data plan but don’t need the latest smartphone, while others want the latest phone but not a lot of data. T-Mobile’s value plans ensure neither will overpay.

T-Mobile also intends to stick with plans that slow users down after they hit the amount of data they have paid for, rather than implementing an overage charge.

“What customers hate is when they are using data and suddenly they are being cut off or they have to pay gigantic overages,” Humm said. “Our model doesn’t do that. You stay connected and you don’t have to pay more.”

And while other carriers struggle to figure out a way to allow customers to share gigabytes across multiple devices, Humm said T-Mobile is sticking with an approach that allows customers to add a discounted second rate plan.

When it comes to getting the latest devices, Humm insists that isn’t a problem despite his No. 4 market position and the fact that the company uses a rather unique wireless band.

Of course, there is one big exception: The iPhone.

All of the other major U.S. carriers — AT&T, Verizon and Sprint — now carry the Apple device, leaving Humm odd man out.

He isn’t giving up hope, though.

“The key reason we didn’t have the iPhone in the past is we are on different band than globally the market was,” Humm said. “That is something which will change over time. Chipsets are also evolving to be able to allow for more bands.”

As always, though, the decision is up to Apple, Humm acknowledges.

On the marketing front, Humm said that T-Mobile will probably resume the approach it had been taking prior to the AT&T deal, in which it sharply attacked its rivals and pitched itself as a more consumer-friendly alternative.

“We will pick up our challenger strategy the way we had presented it last year and sharpen it further,” he said.

Long-term, the company still has to figure out what it is going to do about a next-generation network. Verizon, AT&T and Sprint have all either launched an LTE network or plan to do so this year.

Because of spectrum limitations, T-Mobile has focused instead on speeding up its existing HSPA+ network, which it also bills as “4G.” For now, Humm insists that is good enough, saying customers care more about reliability and speed than they do network technology.

The real benefit of LTE, Humm said, is on easing network congestion, and he notes that isn’t a problem T-Mobile currently is struggling with.

“LTE has the advantage on the long haul; it is more effective spectrum ultilization,” Humm said. “That’s only something which will help (over) the long haul. You are talking about maybe in three, four, five years.”

LTE is still the long-term plan, Humm said, adding that he thinks the company will find a way to get the spectrum it needs.

“We’re not against LTE,” Humm said. “We will over time evolve to LTE. We just don’t see a need to move there very fast.”

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While the carrier gets valuable spectrum, a roaming agreement and $3 billion in cash, the future of the No. 4 U.S. carrier is cloudier than ever, now that AT&T has called off its planned purchase.

T-Mobile has been operating as something of a lame duck since AT&T first proposed its $39 billion acquisition in March. Consumers, employees and potential partners have all been writing the carrier off, assuming that it would soon be swallowed up by its far-larger rival.

The abrupt turn of events will send T-Mobile and its parent company back to the drawing board, which will include soliciting new buyers, figuring out a strategy for its next-generation network and coming up with some inducements to avoid losing even more customers.

The blow of the breakup is only softened by the fact that the Bellevue, Wash.-based carrier will be handed a huge chunk of spending money to ride out the near-term bumps.

As T-Mobile looks to come up with Plan B, here are some potential options:

Spectrum sharing: As part of the breakup, AT&T has entered a mutually beneficial roaming agreement with Deutsche Telekom. Terms of the agreement have not yet been shared, but there could be some pretty compelling outcomes.

In Europe, it is common for carriers to share spectrum and even the cost of maintaining the network and towers. From the consumer’s perspective, it’s two different networks and two different brands. The carriers only end up competing on handset offerings, price and features — not coverage.

Another merger: T-Mobile will entertain any and all offers. Most recently, Dish said it was interested in partnering with T-Mobile if its merger with AT&T fell apart. Other candidates could include Sprint, or other companies from the media industry that are always sniffing around wireless, such as cable operators.

A bid from a company like Google or Microsoft would definitely make things interesting. While both are less likely candidates, they could use the network to push their agenda, including handsets and applications.

A total overhaul: The $4 billion breakup fee could give Deutsche Telekom the confidence to take another shot at the U.S. market. Probably not, but there’s always a chance. The company’s roots have been entrepreneurial and scrappy, but it’s been awhile since it has been able to make an impact on the market.

Worst-case scenario: Deutsche Telekom passes out the cash as a dividend to stockholders. It has always leaned on the U.S. as a moneymaker, and this could be no exception.

The 4G conundrum: Regardless, T-Mobile still does not have enough spectrum to update its network to the next generation. It may gain access to AT&T’s 4G network as part of the roaming agreement with AT&T, but both companies will arguably need more spectrum to keep up with demand.

The only two options will be to partner with Clearwire or LightSquared, or to wait until the next government auction. Both Clearwire and LightSquared are always in need of more cash, and have their difficulties. A deal with Clearwire would be additionally complicated by the fact that Sprint owns nearly half of the company.

AllThingsD’s Ina Fried contributed to this report.

In a statement, AT&T said it had made the move after consulting with T-Mobile parent Deutsche Telekom, and criticized the actions that forced it to abandon the deal.

“The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage,” AT&T said. “In the absence of such steps, customers will be harmed and needed investment will be stifled.”

In addition to federal regulators, Sprint had vehemently opposed the deal, as had other smaller competitors and public interest groups, arguing it would hurt competition.

AT&T will have to pay a giant breakup fee to Deutsche Telekom, as well as enter into an expanded roaming agreement. AT&T said it would take a $4 billion charge in the fourth quarter to account for the cash and spectrum owed to the German telecommunications firm. The charge reflects $3 billion in cash and the $1 billion book value of spectrum owed, though many have placed the value of the spectrum at far more than its book value.

Despite the windfall, the move still leaves Deutsche Telekom without an exit plan for its U.S. holdings, and leaves T-Mobile without a clear path to offer higher-speed LTE service.

AT&T announced its plans to acquire T-Mobile back in March, on the eve of the CTIA trade show in Orlando. It drew almost immediate opposition from Sprint. The headwinds grew stronger as regulators began considering the deal and its potential impact on competition.

The companies had sought to see if there might be a way to offer concessions, but opponents seemed against any combination of the two, dimming the prospects for satisfactory concessions.

AT&T also failed on the political side, in addition to its regulatory chess moves. The company sought to withdraw its FCC application in hope of waiting for a court to rule on the Justice Department’s move to block the deal. However, the court in that case decided that with no FCC application pending it had no need to move quickly.

These discussions are not advanced and were described by the people more as a plan the two companies have on the backburner. Still, AT&T and Deutsche Telekom are likely to take a closer look at a joint venture as AT&T’s planned $39 billion purchase of T-Mobile USA faces mounting opposition, they added.

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A Deutsche Telekom spokesman said that AT&T could pull out of the deal if the concessions needed to get approval were above $7.8 billion, but said the German company would still be entitled to the break-up fee package.

Reuters, citing an unidentified insider, reported Monday that AT&T may get around that agreement if certain conditions are met.

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In a surprisingly early and decisive move, the Department of Justice on Wednesday filed suit to block AT&T’s planned $39 billion purchase of T-Mobile USA. Justice Department attorneys said that they are concerned the deal will lessen competition, ultimately leading to higher prices for consumers.

Experts say the broad worry about the reduction in competition makes it tough to imagine what sort of sweeteners the companies could create to make the deal easier to swallow.

“Given the nature of the specific concerns articulated by the DOJ, those types of concerns are hard to address through concessions,” said Maury Mechanick, a telecommunications attorney with White & Case.

As a result, it would appear that AT&T and T-Mobile will have to weigh whether they are willing endure an all-out court fight to try to preserve the deal.

And oh, what a fight it would be. In order for the deal to go forward, AT&T would have to convince a federal court to see things its way as well as prevail on any appeals, a process that is uncertain, not to mention costly and time-consuming. Even if they ultimately prevail in court, the companies still need the approval of the Federal Communications Commission.

Both FCC Chairman Julius Genachowski and Commissioner Michael Copps issued statements on Wednesday saying that they, too, have concerns about the deal. While the FCC review is separate from the one being done by the Justice Department, the statements indicate the two agencies seem to be on the same page when it comes to the deal.

One FCC insider noted that the agency has never approved a deal that the Justice Department sued to block.

For now, both AT&T and T-Mobile parent Deutsche Telekom say they are willing to fight for the deal. AT&T has asked for an expedited hearing on the matter.

Earlier on Wednesday, the Department of Justice filed suit seeking to block the deal on the grounds it would harm competition. AT&T said it was surprised by the government’s move and vowed to fight in court.

In a statement to AllThingsD, the German telephone giant said the U.S. government is wrong to block the proposed $39 billion deal.

“Deutsche Telekom is very disappointed by the DOJ’s action, and will join AT&T in defending the contemplated merger against the complaint in court,” DT Executive Vice President Philipp Schindera said. “(The) DOJ failed to acknowledge the robust competition in the U.S. wireless telecommunications industry and the tremendous efficiencies associated with the proposed transaction, which would lead to significant customer, shareholder, and public benefits.”

Schindera did say he appreciated the apparent willingness of regulators to discuss possible remedies.

The U.S. wireless arm of Deutsche Telekom said its revenue for the June quarter was $5.05 billion, down from $5.16 billion in the prior quarter and $5.36 billion in the second quarter of 2010. Net income in the second quarter of 2011 was $212 million, up 57 percent sequentially, but down 48 percent from last year’s second quarter.

On the subscriber front, T-Mobile said it lost 50,000 overall customers, as a drop of 281,000 contract customers was partially offset by gains in the prepaid segment. The average monthly revenue per customer was $46, about where it has been the last few quarters, but down $1 per month from the second quarter of last year, as prepaid customers make up an increasing percentage of the comapny’s business.

“The United States remains a difficult market for Deutsche Telekom, but we see improvements compared to the first quarter of 2011,” Deutsche Telekom CEO René Obermann said in a statement, adding that the company plans to stick with its current strategy.

The company also noted $13 million in expenses related to the pending AT&T deal, which it hopes will close early next year, despite opposition from Sprint and others.

For the quarter, T-Mobile said its service revenue was $4.63 billion, about the same as a year earlier, though operating income before depreciation and amortization fell $200 million. In particular, the company struggled to sign new contract customers as its mix continued to shift to prepaid customers.

“The first quarter shows a mixed picture,” Rene Obermann, CEO of T-Mobile parent company Deutsche Telekom, said in a statement.

Of course, most eyes these days are on T-Mobile USA’s planned sale to AT&T for $39 billion–a deal that still requires regulatory approval from both the Federal Communications Comission and the Department of Justice. A Senate subcommittee is scheduled to hold hearings of its own next week.

“Our deal with AT&T announced a few weeks ago will not change the focus of our US business. Until the closing of the deal, T-Mobile will continue to challenge its competitors and compete aggressively in the US market.”

T-Mobile, which had been attacking AT&T, in particular, in its ads, now focuses its TV campaign generically on its rivals as seeking to hit customers with all sorts of overage and other charges. The company ended the first quarter with 33.6 million customers, down from 33.7 million in both the December quarter and a year ago. However, it lost 471,000 contract customers sequentially, offset some by the fact it gained 372,000 prepaid customers.

The carrier says it activated 3.6 million iPhones in Q1. That’s down from 4.1 million in Q4 2010, but up from the same quarter a year ago, when it turned on 2.7 million Apple handsets.

AT&T says 23 percent of its iPhone activations were new subscribers. [An earlier version of this post reach a premature conclusion about the percentage of AT&T users that migrated to Verizon.]

The carrier’s earnings release said almost nothing about its planned acquisition of T-Mobile from Deutsche Telekom for $39 billion, but we’ll expect to hear more about that during the conference call later this morning.

“We anticipate there will be some markets we will have to divest,” Mr. Stephenson said in an interview.

AT&T’s proposed plan to buy T-Mobile from Deutsche Telekom AG for $39 billion is expected to face heavy scrutiny from regulators and opposition from consumer-advocacy groups and competitors. Rivals Sprint Nextel Corp. and Clearwire Corp. have already been vocal about the harmful impact from the deal.

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Combined, AT&T and Deutsche Telekom’s T-Mobile USA spent roughly $11 billion in 2010 on wireless capital expenditures–that is, the plumbing that keeps their networks flowing freely. If the merger is approved, big changes may be made to how those billions are spent, creating winners and losers among infrastructure suppliers.

In the early going, AT&T expects to boost its own capex by $2 billion in order to integrate T-Mobile’s network. One winner could be tiny Tekelec, said analyst George Notter of Jefferies. AT&T accounts for a fifth of its revenue and might use more of the company’s technology to unclog its network by shifting traffic to T-Mobile’s.

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Or, perhaps $600 million. Depends on which estimate you want to use for T-Mobile’s annual marketing outlay.

The first, which doesn’t include Internet advertising, comes from Nielsen. The second, which presumably does, comes from WPP’s Kantar Media.

In any case, T-Mobile and parent Deutsche Telekom spend a lot on advertising each year, but not nearly as much as their peers. Nielsen pegs AT&T’s annual spend–just for wireless ads–at $896 milllion; Sprint at $616 million and Verizon at $979 million.

It’s important to note that AT&T will end up replacing some of T-Mobile’s ad spend, but not all of it. As Shira Ovide notes, cutting down on duplicative advertising is part of the rationale for the deal.

Nielsen provided me with a detailed estimate which breaks down how much of each of the carriers spend per year, on every category but Web spending and “spot” TV buying (ads bought ad hoc instead of in advance).

You can see the whole thing at the bottom of this post but if you’re impatient: Not surprisingly, the carriers spend the most, by far, on broadcast TV, followed by cable TV, Spanish-language TV, and then local newspapers.

As far as Web ad spend goes: The carriers spend a lot online, too. But tracking for that stuff is much more hit and miss. Nielsen used to provide a guesstimate for display ads, but doesn’t right now. When they did, though, AT&T and Verizon were frequently in their top 10 lists.

One other note: Lots of people are passionate about Carly Foulkes, the T-Mobile spokesmodel who wore a pink and white dress in all those ads. But I’m the kind of guy who was always more interested in the “AT&T”/John Hodgman guy. Go figure.

It turns out the actor’s name is Dan Bakkedahl, and he used to be on the “The Daily Show”, and I was wondering what he thought about this. Alas, “T-Mobile would like Dan to wait to do any interviews,” his manager informs me via e-mail.

OK. But as soon as he’s ready, he’s got an open forum here…

Wireless Carrier Ad Spend July09-June10

Here’s the memo to staff from T-Mobile CEO Phillip Humm (which we should note was posted earlier on Sunday by newly formed Seattle-area tech site GeekWire). And for more, check out Mobilized’s just-published interview with AT&T executive Ralph De La Vega offering his take on the deal.

Dear colleagues,

I write to you over the weekend with important news. Today we announced the beginning of a new journey for T-Mobile USA. AT&T and Deutsche Telekom have reached an agreement for AT&T to acquire T-Mobile USA, positioning the combined company to create a world-class platform for mobile broadband innovation and growth. Deutsche Telekom will become the largest shareholder of AT&T.

The sale of T-Mobile USA to AT&T is the best possible solution for our business and for our customers. The merger will ensure the deployment of a robust 4G network to 95% of the U.S. population, something neither company could achieve on its own. Also, because of our compatible networks and spectrum, the customers of T-Mobile USA and AT&T will experience improved voice and data service almost immediately after the networks are integrated.

Additional details about this transaction are included in a press release attached to this e-mail.

I know this news is unexpected and may be somewhat unsettling, but I am confident that our strong culture and T-Mobile USA Values will help guide us through this process.

Bringing together these two world-class businesses will create significant benefits for our customers. T-Mobile is a wonderful business, with great employees who have always demonstrated a willingness to do what it takes to be successful. Frankly, that is exactly why AT&T expressed an interest in combining our organization with theirs.

AT&T has a proven track record of growing through successful integrations. Their leaders recognize that making this combination a success will require the talent and commitment of T-Mobile USA employees. I believe you will see that reflected in their statements and their actions. In fact, AT&T’s leadership has said keeping our talented people through this transition is one of their top priorities.

It is important to keep in mind that this transaction requires regulatory approval from government agencies; until that time we remain T-Mobile USA and must continue to operate independently. It is expected that this deal will close within 12 months. With that in mind, I ask that each of you remain focused on the outstanding work you do every day to meet and exceed our customers’ expectations.

I ask you to join me in embracing this new opportunity to build America’s premier mobile broadband company. In the meantime, continue to execute our Challenger strategy – there‘s a lot of work to do in the year ahead.

I promise to make more information available to you in the coming days and weeks on OneVoice and through your leaders.

Thank you for your ongoing commitment and support.

With sincere appreciation,

Philipp Humm
CEO & President
T-Mobile USA

More Coverage

• AT&T Wraps Self in Flag, Says T-Mobile Deal Essential to U.S. Competitiveness
• The AT&Terminator: Rise of Ma Bell
• Sprint: AT&T’s T-Mobile Buy Would “Dramatically Alter” Market
• First Casualty of AT&T Deal: T-Mobile Drops From CTIA Panel
• What AT&T Owes T-Mobile if Deal Doesn’t Go Through
• T-Mobile USA: No, We’re Not Getting the iPhone Yet
• T-Mobile’s Memo to Staff on the AT&T Deal
• AT&T’s President on Why T-Mobile Deal Should Pass Muster and Won’t be a Customer Nightmare
• T-Mobile: We Were Totally Kidding About AT&T’s Crappy Network!
• AT&T Agrees to Acquire T-Mobile USA for $39 Billion

True, part of the rationale for the $39 billion deal is that combining the two networks will improve AT&T’s quality. But that’s a nuance that may be lost on TV (and Web video) viewers who have been watching T-Mobile explain, over and over and over, why AT&T is a terrible choice.

MORE COVERAGE

• AT&T Agrees to Acquire T-Mobile USA for $39 Billion
• AT&T’s President on Why T-Mobile Deal Should Pass Muster and Won’t be a Customer Nightmare
• T-Mobile’s Memo to Staff on the AT&T Deal
• T-Mobile USA: No, We’re Not Getting the iPhone Yet

To most observers, the deal will come as a surprise since earlier reports had pegged Sprint and T-Mobile in discussions.

The combination of T-Mobile and AT&T makes much more sense given that the two use the same GSM technology. However, the deal will likely face steep regulatory hurdles as it will mean that the country will go from having four major national wireless carriers to three (and from two major GSM providers to one).

T-Mobile, which is owned by the German telecom company, has been struggling to add customers over the past year. It also does not have a strategy for updating its network to true 4G technology (while it has claimed to have 4G for quite some time, truthfully it’s really only 3G on steroids).

The lack of airwaves–the equivalent of gold for the wireless carriers as consumers gobble up broadband by using their phones to surf the Web, watch movies and perform other data-intensive activities–was listed as the chief reason for the acquisition.

In a news release, AT&T said the acquisition of T-Mobile USA “provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies’ customers. In addition, it provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some markets, which limits both companies’ ability to meet the ongoing explosive demand for mobile broadband.”

Now, AT&T said, it will be able to ramp up the roll out of LTE and will be able to deploy LTE to 95 percent of the U.S. population, reaching an additional 46.5 million Americans beyond current plans (including rural communities and small towns). AT&T has struggled to keep pace with Verizon Wireless, which has already blanketed the country with LTE, also known as 4G.

By offering better service, it could convince antitrust regulators that the combination of the two companies is a necessity.

AT&T pointed out in a separate email to us that the U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market.

Deutsche Telekom, which always considered T-Mobile USA as its darling, will now own eight percent of AT&T. A Deutsche Telekom representative will join the AT&T board of directors.

The $39 billion purchase price will include a cash payment of $25 billion, with the balance to be paid using AT&T stock. AT&T has the right to increase the cash portion by up to $4.2 billion with a corresponding reduction in the stock component, so long as Deutsche Telekom still receives at least a five percent equity ownership interest.

The deal has an unspecified break-up fee and will take a year to close.

The acquisition, if it is approved, will put more pressure on Sprint, which is the third-largest carrier in the U.S. It owns a majority of Clearwire, on which it is relying on for its 4G network. Just recently, Clearwire went through a major management shake-up, signaling that changes could be occurring there as well.

Together, AT&T and T-Mobile will be the largest network in the U.S., with 129.2 million subscribers, just barely beating out Verizon Wireless, with 101.1 million.

Here’s the entire press release:

DALLAS & BONN, Germany–(BUSINESS WIRE)–AT&T Inc. (NYSE: T) and Deutsche Telekom AG (FWB: DTE) today announced that they have entered into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction currently valued at approximately $39 billion. The agreement has been approved by the Boards of Directors of both companies.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future”
AT&T’s acquisition of T-Mobile USA provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies’ customers. In addition, it provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some markets, which limits both companies’ ability to meet the ongoing explosive demand for mobile broadband.

With this transaction, AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns. This helps achieve the Federal Communications Commission (FCC) and President Obama’s goals to connect “every part of America to the digital age.” T-Mobile USA does not have a clear path to delivering LTE.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,” said Randall Stephenson, AT&T Chairman and CEO. “It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people. Mobile broadband networks drive economic opportunity everywhere, and they enable the expanding high-tech ecosystem that includes device makers, cloud and content providers, app developers, customers, and more. During the past few years, America’s high-tech industry has delivered innovation at unprecedented speed, and this combination will accelerate its continued growth.”

Stephenson continued, “This transaction delivers significant customer, shareowner and public benefits that are available at this level only from the combination of these two companies with complementary network technologies, spectrum positions and operations. We are confident in our ability to execute a seamless integration, and with additional spectrum and network capabilities, we can better meet our customers’ current demands, build for the future and help achieve the President’s goals for a high-speed, wirelessly connected America.”

Deutsche Telekom Chairman and CEO René Obermann said, “After evaluating strategic options for T-Mobile USA, I am confident that AT&T is the best partner for our customers, shareholders and the mobile broadband ecosystem. Our common network technology makes this a logical combination and provides an efficient path to gaining the spectrum and network assets needed to provide T-Mobile customers with 4G LTE and the best devices. Also, the transaction returns significant value to Deutsche Telekom shareholders and allows us to retain exposure to the U.S. market.”

As part of the transaction, Deutsche Telekom will receive an equity stake in AT&T that, based on the terms of the agreement, would give Deutsche Telekom an ownership interest in AT&T of approximately 8 percent. A Deutsche Telekom representative will join the AT&T Board of Directors.

Competition and Pricing

The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal. The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market. For example, in 18 of the top 20 U.S. local markets, there are five or more providers. Local market competition is escalating among larger carriers, low-cost carriers and several regional wireless players with nationwide service plans. This intense competition is only increasing with the build-out of new 4G networks and the emergence of new market entrants.

The competitiveness of the market has directly benefited consumers. A 2010 report from the U.S. General Accounting Office (GAO) states the overall average price (adjusted for inflation) for wireless services declined 50 percent from 1999 to 2009, during a period which saw five major wireless mergers.

Addresses wireless spectrum challenges facing AT&T, T-Mobile USA, their customers, and U.S. policymakers

This transaction quickly provides the spectrum and network efficiencies necessary for AT&T to address impending spectrum exhaust in key markets driven by the exponential growth in mobile broadband traffic on its network. AT&T’s mobile data traffic grew 8,000 percent over the past four years and by 2015 it is expected to be eight to 10 times what it was in 2010. Put another way, all of the mobile traffic volume AT&T carried during 2010 is estimated to be carried in just the first six to seven weeks of 2015. Because AT&T has led the U.S. in smartphones, tablets and e-readers – and as a result, mobile broadband – it requires additional spectrum before new spectrum will become available. In the long term, the entire industry will need additional spectrum to address the explosive growth in demand for mobile broadband.

Improves service quality for U.S. wireless customers

AT&T and T-Mobile USA customers will see service improvements – including improved voice quality – as a result of additional spectrum, increased cell tower density and broader network infrastructure. At closing, AT&T will immediately gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets. The combination will increase AT&T’s network density by approximately 30 percent in some of its most populated areas, while avoiding the need to construct additional cell towers. This transaction will increase spectrum efficiency to increase capacity and output, which not only improves service, but is also the best way to ensure competitive prices and services in a market where demand is extremely high and spectrum is in short supply.

Expands 4G LTE deployment to 95 percent of U.S. population – urban and rural areas

This transaction will directly benefit an additional 46.5 million Americans – equivalent to the combined populations of the states of New York and Texas – who will, as a result of this combination, have access to AT&T’s latest 4G LTE technology. In terms of area covered, the transaction enables 4G LTE deployment to an additional 1.2 million square miles, equivalent to 4.5 times the size of the state of Texas. Rural and smaller communities will substantially benefit from the expansion of 4G LTE deployment, increasing the competitiveness of the businesses and entrepreneurs in these areas.

Increases AT&T’s investment in the U.S.

The acquisition will increase AT&T’s infrastructure investment in the U.S. by more than $8 billion over seven years. Expansion of AT&T’s 4G LTE network is an important foundation for the next wave of innovation and growth in mobile broadband, ensuring the U.S. continues to lead the world in wireless technology and availability. It makes T-Mobile USA, currently a German-owned U.S. telecom network, part of a U.S.-based company.

An impressive, combined workforce

Bringing AT&T and T-Mobile USA together will create an impressive workforce that is best positioned to compete in today’s global economy. Post-closing, AT&T intends to tap into the significant knowledge and expertise held by employees of both AT&T and T-Mobile USA to succeed. AT&T is the only major U.S. wireless company with a union workforce, offering leading wages, benefits, training and development for employees. The combined company will continue to have a strong employee and operations base in the Seattle area.

Consistent with AT&T’s track record of value-enhancing acquisitions

AT&T has a strong track record of executing value-enhancing acquisitions and expects to create substantial value for shareholders through large, straightforward synergies with a run rate of more than $3 billion, three years after closing onward (excluding integration costs). The value of the synergies is expected to exceed the purchase price of $39 billion. Revenue synergies come from opportunities to increase smartphone penetration and data average revenue per user, with cost savings coming from network efficiencies, subscriber and support savings, reduced churn and avoided capital and spectrum expenditures.

The transaction will enhance margin potential and improve the company’s long-term revenue growth potential as it benefits from a more robust mobile broadband platform for new services.

Additional financial information

The $39 billion purchase price will include a cash payment of $25 billion with the balance to be paid using AT&T common stock, subject to adjustment. AT&T has the right to increase the cash portion of the purchase price by up to $4.2 billion with a corresponding reduction in the stock component, so long as Deutsche Telekom receives at least a 5 percent equity ownership interest in AT&T.

The number of AT&T shares issued will be based on the AT&T share price during the 30-day period prior to closing, subject to a 7.5 percent collar; there is a one-year lock-up period during which Deutsche Telekom cannot sell shares.

The cash portion of the purchase price will be financed with new debt and cash on AT&T’s balance sheet. AT&T has an 18-month commitment for a one-year unsecured bridge term facility underwritten by J.P. Morgan for $20 billion. AT&T assumes no debt from T-Mobile USA or Deutsche Telekom and continues to have a strong balance sheet.

The transaction is expected to be earnings (excluding non-cash amortization and integration costs) accretive in the third year after closing. Pro-forma for 2010, this transaction increases AT&T’s total wireless revenues from $58.5 billion to nearly $80 billion, and increases the percentage of AT&T’s total revenues from wireless, wireline data and managed services to approximately 80 percent.

This transaction will allow for sufficient cash flow to support AT&T’s dividend. AT&T has increased its dividend for 27 consecutive years, a matter decided by AT&T’s Board of Directors.

Conditions

The acquisition is subject to regulatory approvals, a reverse breakup fee in certain circumstances, and other customary regulatory and other closing conditions. The transaction is expected to close in approximately 12 months.

MORE COVERAGE

• AT&T’s President on Why T-Mobile Deal Should Pass Muster and Won’t be a Customer Nightmare
• Sprint: AT&T’s T-Mobile Buy Would “Dramatically Alter” Market
• T-Mobile’s Memo to Staff on the AT&T Deal
• T-Mobile: We Were Totally Kidding About AT&T’s Crappy Network!
• What AT&T Owes T-Mobile if Deal Doesn’t Go Through
• T-Mobile USA: No, We’re Not Getting the iPhone Yet
• First Casualty of AT&T Deal: T-Mobile Drops From CTIA Panel

The company has a not-too-shabby 35 million downloads to date of its Wall product, and is the default media gallery for Google’s Android. But now it’s venturing out into the oh-so-hot mobile media-sharing space (see: Instagram, Path, Picplz) with a photo app called LiveShare–for iPhone, Android, Windows Phone 7 and the Web–that’s focused on groups.

Cooliris is also announcing today that it’s raised $9.6 million in Series C funding from investors including Kleiner Perkins Caufield & Byers (which also recently backed Path), Deutsche Telekom’s T-Venture, DAG Ventures and the Westly Group. The five-year-old Palo Alto-based company has now raised a total of $28.6 million and employs 45 people.

Cooliris’s new LiveShare app helps users create photo streams for a particular event or group of people. Everyone who is invited to a stream can share photos, taken on a phone or elsewhere. Cooliris CEO Soujanya Bhumkar said that he thinks this “hyperpersonalized” approach fits with how people think about sharing: With respect to the four aspects of space, time, interests and relationships.

What does that actually mean? While Path pushes users to identify their closest 50 friends for intimate sharing of personal photos and videos, LiveShare gives users the option of sharing with whoever is appropriate for any context.

There are many alternatives to LiveShare, especially for Apple’s iOS platform. Will users want to install yet another app because of its particular set of nifty features and the flexibility of its sharing options? Perhaps not, but people seem to increasingly utilize tools to segment their online identities, so LiveShare could become part of that trend.

There’s also competition from the social Web giant Facebook, which provides a similar way to filter its Web site based on designated friend groups (though it has not disclosed how popular the product is with users). LiveShare, like many social apps, gets its friend network information from users plugging into Facebook.

But Cooliris isn’t starting from scratch with this product. For instance, the company is making use of its existing relationship with Google, so LiveShare will be incorporated into Android’s Gallery. But with nearly $30 million raised, expectations for LiveShare will be very, very high.

“T-Mobile is ideally positioned to grow in the expanding U.S. market with the mobile Internet, if possible to a disproportionately large extent,” T-Mobile Group CEO Rene Obermann said in a statement issued by parent company Deutsche Telekom. “Philipp Humm and his team have a broad-based strategy to put T-Mobile USA back on course for growth.”

Among its plans are to offer the most competitive data rates while also introducing a faster version of its HSPA+ network, the one T-Mobile bills as America’s largest 4G network. Lacking an iPhone to offer, T-Mobile has been running a pointed ad campaign poking fun at AT&T and, more recently, also at Verizon.

T-Mobile also hopes to boost its fortunes by increasing sales efforts to businesses and allowing other carriers–so-called MVNOs–to sell services on its network.

The company reiterated its plans to eventually move to a Long-Term Evolution network (the same technology being adopted by Verizon and AT&T). However T-Mobile said this will “probably not be for a few years.”

While T-Mobile spoke to the business and technical hurdles associated with moving too quickly to LTE, it also acknowledged the other big stumbling block–it lacks enough spectrum to do so.

“Deutsche Telekom is exploring various options to acquire additional spectrum and reduce the gap regarding economies of scale compared with its larger competitors, including partnering with other companies,” T-Mobile said.

T-Mobile also announced the Samsung Galaxy S 4G and said it would bring back the Sidekick brand with a 4G, Android-based device to be introduced in the spring.

The iPhone exclusivity deals are fast becoming an anomaly, with Apple inking more multi-carrier distribution agreements in markets it first entered with a lone partner. The latest to undergo the transformation: Germany.

Come November, Deutsche Telekom’s three-year run as the iPhone’s exclusive German carrier will end, as rivals Vodafone and O2 add the device to their smartphone lineups.

Which means iPhone carrier exclusivity is a phenomenon now limited to countries like the United States and China, and even there it seems to be on its last legs.

Rumors have been circulating for months now of new partnerships with China Telecom and Verizon (VZ) that would make both countries multi-carrier, which is in Apple’s (AAPL) best interests financially as it tends to dramatically increase sell-through.

Deutsche Telekom (DT)-owned carrier T-Mobile’s iPhone exclusivity deal with Apple (AAPL) is nearing expiration and has not been extended. People familiar with the matter tell The Wall Street Journal that the company’s exclusive rights to sell the device may end as soon as October, opening the door for Vodafone and O2 to begin selling it as well. Discussions between Apple and both carriers are said to be underway and deals are expected to be signed in time for the holiday shopping season.

The merger of France Telecom’s Orange and Deutsche Telekom-owned T-Mobile will create the largest mobile phone operator in the U.K. with about a 34 percent share of the market, just ahead of current market leader O2, which claims about 28 percent. It will also reduce the number of carriers in the country, which critics argue will reduce competition and raise prices.

Orange and T-Mobile disagree, of course, and claim the deal will give subscribers better coverage and improved customer service. We’ll see, I guess.

Oh, no word yet on the combined company’s name.

Evidently, the German telecommunications outfit is looking to placate shareholders dismayed by the unit’s performance of late. Not only is T-Mobile trailing far behind rivals like AT&T (T), Verizon Wireless (VZ), and Sprint (S), it’s losing subscribers. In the third quarter of 2009, for example, T-Mobile lost a net 77,000 customers.

Were Deutsche Telekom to move ahead with a T-Mobile IPO, it might be able to raise enough capital to build out its network, improve reception in major markets and start winning back some of the subscribers it has been losing.

Leave it to Google to compare its most aggressive new product to date with one that often includes meat by-products, bone meal, brewer’s rice, corn syrup and–yum!–“dried animal digest.”

But that’s exactly how the Silicon Valley search giant chose to describe its new Nexus One smartphone in a blog post Saturday.

As in eat its own product! Get it?

Titled: “An Android dogfood diet for the holidays,” the post reads, in part:

At Google, we are constantly experimenting with new products and technologies, and often ask employees to test these products for quick feedback and suggestions for improvements in a process we call dogfooding (from “eating your own dogfood”). Well, this holiday season, we are taking dogfooding to a new level.

We recently came up with the concept of a mobile lab, which is a device that combines innovative hardware from a partner with software that runs on Android to experiment with new mobile features and capabilities, and we shared this device with Google employees across the globe.

While Google (GOOG) did not cite the phone by name in its online missive, a number of sources told BoomTown that the sleek-looking, brown-gray touchscreen device was given to employees at the company’s weekly all-hands meeting Friday afternoon at the Googleplex HQ in Mountain View, Calif., and across the world, ensconced in a white box with the name right on the top.

While the bajillions of Google employees given their early holiday gift were told not to tweet about it or share any information, that’s precisely what they soon did, declaring it delicious.

The Twitter feed, so to speak, that ensued quickly got noticed by the blogosphere–first on Friday night by TechCrunch, which also first wrote about the “Google Phone” last month. (The Wall Street Journal followed up with the name of the phone and other details on Saturday.)

And that is exactly what Google execs meant to happen, of course, by slowly unleashing the Nexus One on the public.

Why? Well, so as to test the waters, presumably, after finding a somewhat tepid reception, so far, from big wireless carriers that might provide service for it.

Google has, of course, talked to them all, because its plan to market the phone depends on cooperation and not disputation with the big telcos.

So far, no one but T-Mobile–the U.S. subsidiary of Deutsche Telekom (DT) that already sells four phones using Google’s Android operating system software–has taken the kibble to be part of a new way of selling mobile devices that the search joint will be trying, according to MediaMemo.

As Peter Kafka wrote:

“But, for sure, Google doesn’t intend to sell its new ‘Nexus One’ phone the typical way, sources familiar with the company’s plans say. Instead, it envisions a scenario where customers who buy the handset on a separate Web site are provided with a list of carriers from which they can make a selection menu-style.”

Google needs cooperation here, because most phones are sold “locked,” which means they work only on the carriers you buy them from. (Sort of like making you join a forced march, but with dropped calls.)

Thus, Google is also trying to create a phone so tasty that consumers demand that wireless networks provide it to them, unlocked and with competitive bidding for service.

That prospect is probably not so yummy to the telcos, because they still mostly operate like Soviet ministries, except they’re not nearly as flexible.

The question is: If Google is successful in forcing the wireless giants from their practice of handing over whatever thin gruel they choose to dish up to consumers, will it result in better phones for all?

Or will Google’s experiment be just that and result in another innovative but failed attempt to change the woeful cell system in the U.S., ending up as another Android phone that still lags behind the Apple (AAPL) iPhone?

We’ll all soon see, but not yet, according to Google, which also coined the disturbing term, “dogfooding,” in its hey-everyone-look-at-me-but-don’t-see blog post.

“Unfortunately, because dogfooding is a process exclusively for Google employees, we cannot share specific product details. We hope to share more after our dogfood diet.”

My dog, Cosmo, is waiting expectantly by his empty bowl.