This is good news for the whole sector

DE JA VU anyone? A big mobile operator gets together with a smaller German-owned rival, allowing it to leapfrog its way to the top of the pile. This deal bears a remarkable similarity to the merger of the British operations of Orange and T-Mobile. As telecoms anoraks will know, that deal – which created the dystopian-sounding Everything Everywhere – has yet to provide the synergies or operational improvements that were promised at the time. Telecoms mega-mergers are rarely as good as they sound.

Which makes us wonder quite how Deutsche Telekom managed to drive such a hard bargain, convincing AT&T to pay a meaty 7.1 times historic ebitda for its T-Mobile US operations. It has also negotiated a hefty $3bn break-up fee should the deal fall apart, in which case it will also receive some of AT&T’s spectrum. The fact that AT&T was willing to agree to such a big break-up penalty suggests it is confident of securing regulatory approval.

Number One US mobile network provider Verizon has been tight-lipped on the deal so far and if management has any sense it will keep quiet when it comes to any regulatory hurdles. Because like the UK mobile telecoms market, the US players are suffering from far too much competition. The prices the main players can charge for data services are nowhere near high enough to fund the massive capital expenditure needed to invest in the next generation of high-speed 4G networks.

AT&T has done its rivals a favour by reducing the number of major players from four to three. Higher data prices should lead to better margins for the entire industry.