AT&T (NYSE: T) has announced that it will buy T-Mobile USA from parent Deutsche Telekom for $39 billion in cash and stock. The deal has been approved by the board of directors of both firms, but is still subject to regulatory approvals by the FCC and Department of Justice. The companies expect the transaction to close in one year.

The merger, which would combine the No. 2 and No. 4 U.S. wireless carriers, will dramatically increase AT&T's subscriber base from 95.5 million to 129.2 million. It also will significantly broaden AT&T's network footprint. The company said the transaction will allow it to deploy LTE to 95% of the U.S. population, or approximately 294 million people, reaching an additional 46.5 million people than it could with its current LTE deployment plans.

As part of the deal, AT&T will pay $25 billion in cash and the rest in stock. In return, Deutsche Telekom will receive an equity stake in AT&T that would give it an ownership interest of approximately 8%. In addition, a Deutsche Telekom representative will join the AT&T board of directors.

AT&T is clearly hoping to convince regulators that this merger is a good move for the wireless industry at a time when the FCC is already questioning the competitiveness of the U.S. mobile business. In its press release announcing the merger, AT&T said the acquisition will result in additional spectrum, increased cell-tower density, and broader network infrastructure, adding that this improvement will result in better voice quality. Ever since AT&T launched the iPhone in 2006, it has been criticized for the quality of its network and its ability to handle the increased data demands brought about by the iPhone.

AT&T also said the merger will increase its infrastructure investment in the U.S. by more than $8 billion over seven years.

Though AT&T did not disclose possible job cuts related to the action, the carrier said it plans to retain a strong employee and operations base in T-Mobile's hometown of Seattle.  

AT&T's acquisition of T-Mobile is a bit of a surprise, considering that recent market noise pegged Sprint Nextel (NYSE: S) as interested in a teaming with DT's arm in the United States.

AT&T's proposed purchase of T-Mobile is the latest in a string of gigantic telecom mergers. Verizon (NYSE: VZ) recently acquired Alltel, Sprint purchased Nextel in 2005, and the former Cingular Wireless became AT&T Mobility with the recent merger of SBC and AT&T.

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