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Getting AT&T’s deal with T-Mobile approved by U.S. regulators could be difficult, as the Obama Administration contemplates the loss of the fourth largest national carrier, leaving just three national players.  Michael Nelson, analyst at Mizuho Securities USA Inc., discusses AT&T Inc.’s agreement to buy Deutsche Telekom AG’s T-Mobile USA unit for $39 billion in cash and stock. Nelson talks with Erik Schatzker on Bloomberg Television’s “InsideTrack.”  (5 minutes)

Dismissing the implications of an antitrust regulatory review not seen in the United States for years, AT&T this morning officially unveiled its intention to acquire T-Mobile in a $39 billion deal that will give AT&T nearly 40 percent of the American wireless market.

With a combination of the two companies, the new super-sized AT&T would become America’s largest wireless operator, and deliver nearly three out of every four wireless customers to just two companies — AT&T and Verizon.

Wall Street is delighted.

“Phenomenal deal if it happens,” said Jonathan Chaplin, an analyst with Credit Suisse Group AG. “Huge upside for AT&T — [T-Mobile owner] Deutsche Telekom getting a great price; however, we believe regulatory risk is enormous.”

That may prove an understatement, if public interest groups have their way.

“The combination of the second-largest wireless carrier, AT&T, with the fourth-largest, T-Mobile is, as former FCC Chairman Reed Hundt once said, ‘unthinkable,'” said Public Knowledge President Gigi Sohn. “We urge policymakers to think similarly today. The wireless market, now dominated by four big companies, would have only three at the top. We know the results of arrangements like this – higher prices, fewer choices, less innovation.”

“It’s difficult to come up with any justification or benefits from letting AT&T swallow up one of its few major competitors,” said Parul P. Desai, policy counsel for Consumers Union. “AT&T is already a giant in the wireless marketplace, where customers routinely complain about hidden charges and other anti-consumer practices.”

...Ourselves with AT&T

“I think it could reach some level of controversy,” said an antitrust expert, who worked for the Justice Department’s antitrust division. “There’s going to be spectrum issues. This is going to be a complex deal and I don’t think it’s a foregone conclusion that it will be approved.”

Despite the concerns, AT&T is confident that regulators have been sufficiently cowed by the company’s lobbyists to approve just about anything they bring to the table.

AT&T CEO Randall Stephenson told reporters on a conference call that the company spent plenty of time doing “homework” on how to get the deal to pass regulator scrutiny.

The American carrier even bet its winning outcome with a $3 billion cancellation fee, payable to Deutsche Telekom if the deal cannot be consummated.

In AT&T’s presentation this morning, the company promised they would improve America’s worst-rated cell phone company by merging with America’s second worst-rated cell phone company.  Specifically, AT&T says the deal will bring T-Mobile’s wireless spectrum allocations to the larger carrier, which can alleviate spectrum shortages.  The company also promised, in return for deal approval, expand service in more rural locations and quicker upgrades to the next generation of speedy wireless data — LTE.

Ralph de la Vega

Ralph de la Vega, AT&T’s president and CEO of Mobility and Consumer Markets, showed slides promising T-Mobile customers would benefit from new choices in cell phones and would enjoy AT&T’s far larger nationwide network, delivering improved service.  But he also hinted it would cost value-oriented T-Mobile customers, promoting the deal’s potential of winning new revenue from customers soon forced to pay AT&T’s significantly higher prices.

AT&T claimed the company still would face robust competition from Verizon, Sprint, and a number of much-smaller regional carriers like MetroPCS and Leap Wireless’ Cricket — themselves under pressure to merge.  But consumer groups are skeptical.

“Don’t believe the hype: There is nothing about having less competition that will benefit wireless consumers,” said Free Press Research Director Derek Turner. “And if regulators approve this deal, they will further cement duopoly control over the wireless market by AT&T and Verizon.”

“The FCC’s National Broadband Plan, issued last year, warned about the absence of sufficient competition in the wireless market. The possibility that three players would control nearly three-quarters of that market will surely trigger intense scrutiny by the agencies,” said Andrew Schwartzman of Media Access Project.

The deal has been under negotiation for several months between the German carrier and AT&T.  Many Wall Street analysts see the deal as a major win for T-Mobile, which has struggled mightily against the AT&T and Verizon juggernauts.  The German company wins a seat on AT&T’s board, a part interest in the carrier, and a high valuation on its network.  AT&T gets the country’s only other major carrier using the same technology it does — GSM — and picks up the potential of more robust coverage in the urban and suburban areas T-Mobile focuses on.  AT&T will also follow the time honored tradition of buying something they cannot afford outright — they will finance it with a generous credit line arranged by J.P. Morgan Chase.

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CNBC managed to achieve an exclusive interview with the CEOs of AT&T and T-Mobile about their merger.  As with most business media, don’t expect a lot of challenging questions in response to the claims made by the company executives about the merger or its impact on consumers.  (20 minutes)

And then there were three?

Deutsche Telekom has held talks about a possible merger with Sprint in exchange for a major stake in the combined entity, according to people with knowledge of the matter.

The German phone company, owner of T-Mobile, America’s fourth-largest cell phone company, has been pounded by analysts after revealing its earnings for 2011 were likely to be below expectations.  T-Mobile, DT’s American brand, has faced harsh criticism for its stagnant performance, declining earnings, and bleak future.

Michael Kovacocy, director of Equity Evolution Securities, told CNBC T-Mobile is essentially in last place among America’s major national carriers and is going to stay there so long as it targets value-conscious customers who care more about a lower bill than a robust network.

“We think in the long term, perhaps, their position is unsustainable,” Kovacocy said.

Deutsche Telekom, the German phone company, does considerably better in Europe than in the United States.

The analyst predicts T-Mobile will always be relegated to #4 status in an American market dominated by Verizon and AT&T, with Sprint behind in third place.  T-Mobile is further back than that and has stagnated.  Unless they make radical changes — changes Kovacocy feels will be destructive to shareholder value — such as price cuts or major infrastructure improvements, T-Mobile will remain an also-ran.

“They have the wrong customers, the wrong network, and we think their spectrum is very difficult because it’s uncompetitive versus some of the spectrum AT&T and Verizon has,” Kovacocy said.

T-Mobile saw the departure of at least 150,000 customers during the last quarter — most heading for other carriers.

Talks between the two companies have reportedly been difficult, however, over Sprint’s willingness to meet DT’s price.  Sprint has seen losses erode the value of its competitor, and may want to pay less than the $25 billion estimated value of T-Mobile’s network and operations.

Sprint has experience trying to integrate customers from two incompatible networks together, with less than spectacular results.

Another problem:  the two networks rely on different and incompatible standards — CDMA for Sprint and GSM for T-Mobile.  Sprint experienced major integration problems once before, when it acquired Nextel from Craig McCaw in 2005.  Nextel’s iDEN network enabled the popular “push-to-talk” feature beloved by construction workers and contractors, but made integrating the Nextel family into Sprint a hellish nightmare.  After initially promising to phase out the iDEN network by 2009, Sprint recently announced it had pushed back the date of decommissioning to 2013.

A buyout of T-Mobile could leave Sprint serving customers on three different networks — its own customers, those still on Nextel’s network, and T-Mobile.

Although predictions are already being made the merger would pass muster in Washington, public policy groups concerned about the ongoing loss of competition in the wireless marketplace will have a major example to show this practice at work.  Americans continue to face some of the most expensive cell phone service in the world, and T-Mobile’s aggressive pricing helped keep other carriers from raising prices much further.

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Bloomberg News covers the possible sale of T-Mobile to Sprint.  (6 minutes)

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Back on Feb. 25, CNBC  interviewed one of several analysts who were upset with T-Mobile’s likely performance in 2011.  (4 minutes)

After an outpouring of complaints from UK mobile data customers, T-Mobile’s UK division has announced it is backing off implementing ‘new and improved’ usage caps of 500MB per month, down from the 1-3GB customers used to enjoy.  But the change of heart will only apply to existing customers.  New customers will find themselves second class citizens of the T-Mobile family — stuck with a 500MB allowance other customers won’t have to cope with.

The company claims it changed its mind after hearing from customers, but we suspect the real reason for the sudden change was word the British regulator OFCOM was considering an investigation, suggesting T-Mobile could have violated its own contract with customers by not providing 30 days of advance notice.

There were also reports angered customers seeking an early end to their contract were meeting resistance from T-Mobile’s customer relations department.  Customers who quit early face steep early cancellation penalties, despite the fact they should be waived if a mobile provider materially changes the service consumers thought they were getting when they signed up.

Another object lesson learned: Internet Overcharging schemes often start with “generous” allowances that some providers will lower if it means reducing demand on their networks, without ever bothering to lower prices for customers.

Life's for sharing... just not on our wireless network.

British T-Mobile wireless broadband users got — how shall we put it — an “abrupt” and uncharacteristically rude notice about a change in the company’s “Fair Use” policy that takes effect in February (underlining ours):

Browsing means looking at websites and checking email, but not watching videos, downloading files or playing games. We’ve got a fair use policy but ours means that you’ll always be able to browse the internet, it’s only when you go over the fair use amount that you won’t be able to download, stream and watch video clips.

So what’s changing? – From 1st February 2011 we will be aligning our fair use policies so our mobile internet service will have fair use of 500MB.

What does this mean? – We’ll always let you email and browse the internet and you’ll never pay more than you agree to. We do have a fair use policy but ours is there to make sure we deliver the best service possible to all our customers.  This means that you’ll always be able to browse the internet.

So remember our Mobile Broadband and internet on your phone service is best used for browsing which means looking at your favorite websites like Facebook, Twitter, Gmail, BBC News and more, checking your email and looking for information, but not watching videos or downloading files.

If you want to download, stream and watch video clips, save that stuff for your home broadband.

T-Mobile's warning to customers to avoid watching videos on their network flies in the face of their own smartphone promotions.

As our regular reader “Jr” observes, broadband carriers want customers to use their broadband connections to browse web pages and read e-mail — and little else.  Rarely has a carrier come right out and said it, though.

Not only has T-Mobile “aligned” their fair use policies to deliver you less service (down from 1-3GB per month), but they’ve kept the same high price.  T-Mobile is the same company that routinely markets smartphones and other multimedia-equipped handsets specifically for the services they don’t want you to use on their network.

T-Mobile illustrates once again how Internet Overcharging schemes really work:

1. They implement a usage cap and suggest it is “generous” and that the majority of customers will never come close to hitting it;
2. They gradually reduce the usage allowance when revenue needs eclipse the needs of customers;
3. They still claim the new, lower limit is still “generous.”
4. They suggest almost nobody is likely going to hit the limit, no matter what it is.

Of course, had T-Mobile customers really come nowhere near the old limits, what problem was resolved lowering it?  T-Mobile claims the vast majority of customers don’t exceed 200MB of usage per month, an exceptionally low amount in comparison to other carriers.

The telecoms regulator Ofcom told ZDNet UK on Monday that, “if consumers are being notified of a change likely to cause them material detriment, the provider must give the customer one month’s notice of the change, and at the same time they must also inform the customer of their right to terminate their contract without penalty if the proposed change is not acceptable to the customer”.

As the changes take effect from 1 February, T-Mobile has given less than one month’s notice.

“We encourage unhappy consumers to speak with their provider about their concerns,” Ofcom’s spokesperson said. “If the problem relates to a particular term or condition that you feel is unfair, then you can log your complaint with Ofcom. We monitor complaints about the behaviour of communications providers and if there is a high volume of complaints about a particular issue, we do investigate and take action as required.”

(Thanks to our reader “PreventCAPS” for sharing the story with us.)