SETH PERLMAN AND ROBERTO PFEIL / AP Enlarge
AT&T will pay about $25 billion in cash and the balance in company stock in a deal that gives Deutsche Telekom about an 8 percent equity stake in AT&T.
T-Mobile is coming off of two years of flat revenue as it struggles to compete with much larger rivals AT&T and Verizon Wireless. Bellevue, Wash.-based T-Mobile USA's subscriber count has stalled at just under 34 million, though it posts consistent profits.
There have been reports over the last year that Deutsche Telekom has been looking at radical moves to let it get more value out of its U.S. holding, including a possible combination with Sprint Nextel Corp. or some other U.S. partner.
AT&T said in a statement Sunday the deal gives it an "optimal combination of network assets" that adds capacity sooner than any other alternative. It also said the deal will improve network quality for the customers of both companies and increase the number of cell towers by about 30 percent in some of its most populated areas.
The deal has been approved by the boards of both companies, but will likely face tough scrutiny from regulators. Dallas-based AT&T can increase its cash portion by up to $4.2 billion, with a reduction in the stock component, as long as Deutsche Telekom receives at least a 5 percent equity ownership interest in the buyer.
AT&T will finance the cash part of the deal with new debt and cash on its balance sheet and will assume no debt from T-Mobile.