Ryan Knutson

Faced with the same saturated wireless market, the nation’s two biggest telecom companies have placed divergent bets on the future. With its $85 billion agreement to buy Time Warner , AT&T has turned to television while Verizon has looked to Silicon Valley, with its $4.4 billion purchase of AOL in 2015 and pending $4.8 billion acquisition of Yahoo. Both operators are trying to solve the same riddle—each with a different piece of the ill-fated 2001 merger of AOL-Time Warner. They both have millions of wireless subscribers who pay monthly fees to use their networks to share photos, watch videos and tap into social networks. But that wireless business alone lacks the means to drive growth now that the majority of Americans have a smartphone. At the same time, their two smaller rivals are chipping away at their subscriber base.

Buying Time Warner will make AT&T among the most heavily indebted companies on earth. In a deal announced Oct 22, AT&T agreed to pay $85.4 billion to buy the owner of CNN, HBO and TNT networks. Including debt, the value grows to $108.7 billion. And to finance the half-cash, half-stock deal, AT&T is taking on $40 billion of bridge loans.

AT&T, the largest nonfinancial corporate issuer of dollar-denominated debt, already has about $119 billion in net debt—roughly double what it was five years ago. “This would put them, I think, within striking distance of the financials with respect to unsecured bond issuance,” says Mark Stodden, a credit analyst at Moody’s. Stodden estimates the carrier’s total debt load will grow to as much as $170 billion if the deal is approved. AT&T hasn’t said precisely how much debt it plans to issue to fund the transaction, but estimates that by the end of the first year after the deal’s close, net debt will be around 2.5 times its adjusted earnings, up from 2.24 times at the end of the third quarter. Most recently, AT&T added to its debt when it bought the satellite-television operator DirecTV in 2015. It also paid $18 billion for wireless airwaves licenses during a 2015 government auction and spent roughly $10 billion buying its own shares in 2014. More spending is on the horizon tooas the carrier is currently participating in a government auction of wireless airwaves.

The two biggest cable companies said they will soon start selling wireless service but they will be entering a competitive market with handcuffs.

The CEOs at Comcast and Charter Communications both discussed plans to begin reselling Verizon Wireless service as early as 2017. But the Verizon contract only allows the companies to sell cellphone service as part of a bundle, not as a stand-alone product. That means consumers won’t be able to switch to Comcast or Charter for cellular service without also buying either cable television or home internet, too.

Sprint and T-Mobile US recently said they would scrap data caps and give customers a simpler option: unlimited everything at a single price. But the plans had restrictions. Days later, both carriers unveiled “premium” unlimited plans that cost $20 to $25 more a month. And even those had limitations.

“The truly unlimited plan doesn’t yet exist,” said Fredrik Jungermann, managing director of Tefficient, a telecom analytics firm. If the carriers sold unlimited plans without restrictions, “they might get users that would use hundreds of gigabytes a month or even thousands, and they wouldn’t get even a single dollar more for them.” The latest round of unlimited offerings highlights the tactics carriers use to win customers in the competitive wireless market, and the maze of fine print that can catch consumers off guard. The new plans don’t have a hard ceiling on usage, but put restrictions on everyday behaviors.

Local officials in several states have filed dozens of lawsuits saying phone companies, such as AT&T and Verizon, are doling out discounts to businesses at the expense of 911 emergency services.

Telecom operators are required by local laws to charge a 911 fee, typically about $1 for each phone line to support local 911 dispatch centers, including salaries, training and equipment for call takers. But with heated competition for business customers, phone companies have been undercutting one another by lowering those 911 fees for big businesses, resulting in less money for local authorities, the lawsuits allege. Officials in many of the affected counties arrived at the conclusion with help from Roger Schneider, an entrepreneur from Huntsville (AL), who stumbled across the issue 12 years ago. At that time, a representative from BellSouth, now part of AT&T, offered his small business such a discount without realizing that he was a member of the local 911 oversight board. Nationwide, local governments spent more than $3.1 billion on 911 services in 2014, while collecting $2.5 billion in 911 fees, leaving a $600 million funding shortfall, according to the most recent data from the Federal Communications Commission. Only a dozen states reported to the FCC that they collected enough fees to cover their 911 spending for the year, though not all states reported complete data.

Apparently, Sprint is ending its pursuit of T-Mobile US. Sprint and its parent, SoftBank, decided it would be too difficult to win approval from regulators.

Sprint is also expected to replace its chief executive, Dan Hesse.

Sprint's decision didn't have anything to do with the surprise bid for T-Mobile by France's Iliad. Rather, the US regulatory hurdles were the key.

Billionaire Carlos Slim's move to pare his telecom empire in Mexico is raising questions about what his intentions might be north of the border. The company's TracFone unit offers prepaid-mobile service and is the fifth largest US wireless provider, selling service under seven brands, including the Straight Talk brand sold at Wal-Mart Stores.

TracFone continues to grow via a string of acquisitions of small, prepaid carriers and provides Slim with a brand and a US foothold should he choose to expand. The business now rents space on networks from big carriers like AT&T and Sprint. With the continuing consolidation of the US telecom market, it is unclear if Slim would want to take a larger role in the business.

Sprint and T-Mobile US have agreed on the broad terms of a merger worth around $32 billion and are working toward a final agreement, people familiar with the matter said.

Under the framework, Sprint would acquire T-Mobile for around $40 a share in a deal that could happen early this summer, the people said.

A deal could still fall through, but if completed would combine the country's third and fourth largest wireless operators, creating a bigger competitor to market leaders Verizon Communications and AT&T but leaving consumers with fewer choices for service. A deal would face strong opposition from regulators and a lengthy antitrust review, and Sprint would pay T-Mobile more than $1 billion in cash and other assets if it is shot down, the people said.

Sprint will soon become a much bigger holder of wireless airwaves in the eyes of US telecom regulators, a shift that could make it harder for the carrier to do spectrum deals while easing the process for its rivals.

The Federal Communications Commission said it plans to adjust the way it counts airwaves when setting the so-called spectrum screens that trigger additional scrutiny of mergers or spectrum deals.

The bulk of the spectrum being added to the screen -- 101 megahertz of the 128.5 megahertz in total -- is primarily controlled by Sprint and not currently counted.

The proposed change is expected to be voted on at the FCC's May 15 meeting. The FCC applies extra scrutiny to deals when a carrier owns more than a third of all available spectrum in a given market or when the deal would push it over that mark.

The new screens would cause Sprint, the country's third-largest carrier by subscribers, to hit or exceed the one-third threshold in most major markets. The new limits could benefit Verizon Communications, AT&T and T-Mobile US, because they would own a smaller percentage of the total. That would make it less likely they would trigger extra scrutiny when doing smaller spectrum deals.

Residents and business owners in Carbon Hill (AL) got a surprise in letters from AT&T in February. The company said the town, where signs welcome visitors to "the city with a future," could usher in one of the biggest technological changes since Alexander Graham Bell's first telephone.

AT&T and Verizon are racing to replace their phone networks with new technology. The change is supported by the federal government, but smaller phone and Internet service sellers say the two giants are trying to escape regulations that promote competition. If regulators approve, AT&T customers would eventually have to switch to wireless or high-speed service. New customers wouldn't be allowed to sign up for traditional, landline-based service at all.

AT&T's top executive in Alabama, Fred McCallum, wrote that the proposed changes are an "exciting opportunity for our customers and for our company." But Carbon Hill City Clerk Janice Pendley says some people in the former mining town are apprehensive. "Some of them like their landline, and they like it just the way it is," she says.

Nearly 40% of US households now have no landline phone, and there are more wireless devices than people. "Revolution is all around us," says Federal Communications Commission Chairman Thomas Wheeler. An all-Internet protocol network could lead to better products, lower prices and "massive benefits" for consumers, he says.

AT&T says no one will lose old-fashioned phone service until the carrier proves it can provide those customers with "an alternative." The revolution is about to get a nudge from the federal government. AT&T is seeking approval to launch a series of changes that would start with not letting new customers in Carbon Hill and a section of Delray Beach (FL) sign up for traditional, landline-based service. AT&T wants new and existing customers to eventually use broadband service, mobile phones or a conventional phone that connects to a router-like box.

In Carbon Hill, AT&T wants to go ahead even though the carrier is unsure how it would provide broadband service to about 4% of residential customers because they are too far away from the center of the sparsely populated area. In Delray Beach, there is a different challenge: About half of the people are at least 65 years old, the age group slowest to embrace new phones, according to the FCC.

Smaller phone and Internet service providers say it isn't fair for AT&T and Verizon to escape oversight by shifting to a different type of network. Those rivals depend on access to the giant carriers' networks -- and fear it could be threatened as chunks of the traditional phone network are shut down. That could lead to fewer phone and Internet-service choices -- and higher costs for businesses and consumers, the smaller companies say.