$39bn acquisition will give AT&T more than 128 million subscribers.
The cash-and-stock transaction is valued at $39 billion, and should take 12 months to go through.
It took most observers by surprise. Although T-Mobile – the smallest US 'major' carrier with 33.73 million subscribers – has been regarded as for sale for years, AT&T was rarely mentioned as a purchaser.
Under the terms of the deal, T-Mobile parent Deutsche Telekom will receive US$25 billion in cash and US$14 billion in AT&T shares.
The $39bn acquisition will take AT&T past Verizon to become the biggest US operator by subscriber base. Verizon has 102 million subscribers.
One of the main drivers behind the deal is AT&T's need for more spectrum as consumers demand faster and more reliable mobile broadband data.
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It means AT&T can work on expanding its 4G LTE network to cover more than 294 million people.
Deutsche Telekom chairman, Rene Obermann said, "This was a very valuable transaction for Deutsche Telekom. We remain the largest single stockholder of AT&T and therefore have a chance to continue to participate in the American market, and we now have the financial power to implement our innovative strategy in our European businesses."
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