AT&T said on Sunday it would buy T-Mobile USA from Deutsche Telekom for $39 billion, creating the largest wireless company in the United States from what were the nation’s second and fourth providers.

The combined entity would be about a third larger than the current No. 1, Verizon Wireless, and boast more than twice the subscribers as Sprint Nextel, the Wall Street Journal reported.

AT&T put up $25 billion and the rest in stock, according to the companies’ press release, which stated that the transaction would take about 12 months to close. Shares in the company closed at $26.21 on Friday.

If it passes regulatory and shareholder approval, the tie-up will consolidate the only two remaining GSM providers in the United States — AT&T acquired Cingular in 2007 after a complicated string of mergers among the former Baby Bells — and would likely improve available spectrum for both.

That’s an especially urgent need for AT&T, which has seen an 80-fold increase in its wireless data usage since the launch of the iPhone on its network in 2007. The increase in demand has led to widespread connectivity issues and a massive perception problem, which AT&T can only address by increasing its coverage. Acquiring T-Mobile is a relatively inexpensive way to do that.

Another likely winner in the deal is Apple: Soon-to-be former T-Mobile customers ought to be able to get the phone without changing carriers. Currently, only iPhone owners who have performed a jailbreak and unlock have been able to access the T-Mobile network.

In addition to increasing coverage and capacity, the merger is aimed at bolstering AT&T’s position in the race to deploy faster fourth-generation (4G) wireless data networks. The announcement emphasizes AT&T’s plans to expand support for its Long-Term Evolution (LTE) network.

LTE is a faster version of 4G than the HSPA+ network the company currently uses in most parts of the U.S. Confusingly, AT&T and T-Mobile have both been referring to their HSPA+ networks as “4G” in recent months, even though their maximum speeds (6-10 Mbps) are slower than what most people have thought of as 4G.

LTE is the faster, truly next-generation 4G wireless technology that promises speeds of up to 100Mbps (or 10 – 20 Mbps in the real world). It’s also what Verizon has been using for its own 4G network.

Indeed, perhaps the first tangible evidence of the tie-up will be an end to T-Mobile’s snarky campaign touting its 4G network versus the iPhone on either AT&T or Verizon’s data networks. (Hat tip to Peter Kafka over at All Things Digital).

Dylan Tweney contributed mightily to this report.

See Also: