By Brad Chacos on December 7, 2011 in
UPDATE (Monday, December 19): The Wall Street Journal is reporting that AT&T has officially dropped its plan to merge with T-Mobile.
Thing's aren't looking good for AT&T and T-Mobile's proposed $39 billion mega-merger. After months of deliberation, the FCC announced that it would follow in the steps of the Department of Justice (DOJ) and oppose the sale. Although AT&T and Deutsche Telekom (T-Mobile's parent company) withdrew their pending approval applications before the FCC could push the issue further, the agency still released a scathing 109-page report in which, Gizmodo.com says, "the FCC basically calls out AT&T for trying to spin ambiguities in their favor, or making claims without providing data." So is the possibility of AT&T-Mobile fully off the table? Not quite yet.
One step at a time
Don't mistake withdrawn FCC applications for throwing in the proverbial towel. TheVerge.com reports that both companies are still trying to see the sale through. Rather than try to fight a regulatory war on two fronts, with both the DOJ and the FCC, AT&T and Deutsche Telekom instead decided to "consolidate their strength and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice."
If the companies somehow manage to beat the antitrust lawsuit, the proposed acquisition could very well end up being submitted for approval at the FCC once again. It would still be an uphill battle at the FCC, though - as evidenced by the stern wording and skepticism found throughout the FCC report. (The FCC has since redacted the report, but TheVerge.com has a great Cliff's Notes version on its website, as well as an article about AT&T's snide response to the agency's findings.)
Plan B
Even if the full merger fails to win approval, AT&T and Deutsche Telekom still have a couple of business-related tricks up their sleeve. Both the DOJ and the FCC feel that if AT&T swallowed up T-Mobile, it would "likely lead to a substantial lessening of competition" for consumers and competitors alike. But what if AT&T only acquired a portion of T-Mobile?
AT&T wants T-Mobile more for its share of the wireless spectrum rather than its customer base. The New York Times reports that AT&T may be in talks with Leap Wireless, a second-tier mobile provider, to sell that company a big chunk of T-Mobile's accounts, along with a small slice of T-Mobile's wireless spectrum. The swap would see Leap Wireless assume T-Mobile's current position as the fourth-largest mobile carrier in the country.
AT&T reportedly hopes the deal with Leap Wireless would cause the DOJ to drop the antitrust suit, but Andrew Sorkin, the article's author, isn't optimistic about the workaround's chances: "In particular, Leap and MetroPCS would probably still be without enough spectrum or cash flow to be truly competitive," he writes.
Plan C
The Wall Street Journal reports that AT&T and Deutsche Telekom have yet another option "on the back burner" if the merger fails to go through: a joint venture. The details are vague, but the report says that the deal could allow AT&T to tap into T-Mobile's wireless spectrum, while T-Mobile remains intact as a separate entity with its own customer base.
AT&T preparing for the worst
In the meantime, when the two companies withdrew the approval applications from the FCC, AT&T also took a $4 billion accounting charge against its fourth quarter earnings. That amount covers the "breakup fee" that AT&T will have to pay T-Mobile if the deal falls through.
What does this mean for you?
The bottom line is, unless something miraculous happens, an AT&T and T-Mobile merger is very unlikely. If the deal does somehow manage to survive, however, it won't occur any time soon: the DOJ lawsuit doesn't go to court until February, and, again, even if the merger leaps that hurdle, it still faces a stiff uphill battle for FCC approval afterwards.
If you're interested in knowing the potential fallout no matter which way the chips fall, we've already covered the likely changes for customers under a merged AT&T-Mobile in a separate blog post, and our cell phone plans report details the separate companies' highlights and lowlights. (Spoiler: AT&T finishes last.)