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AT&T’s turkey acquisition is off the table

By Karen Brown, Dec 1, 2011

It’s somehow fitting that AT&T Inc. chose Thanksgiving Day to announce it would withdraw its beleaguered proposal before the Federal Communications Commission to acquire T-Mobile USA.

After all, from the moment this $39 billion deal was first proposed it appeared to be a giant turkey. The U.S. Department of Justice apparently saw it as such, filing suit to block it on the grounds that the loss of T-Mobile as a competitor would damage wireless competition in the United States.

That virtually cooked this bird for good, as it gave AT&T virtually no grounds to negotiate a settlement. Even if it agreed to divest large blocks of spectrum or customers, the result would still be loss of the fuchsia T-Mobile consumer brand. The DOJ would still object, leading to a messy court battle.

So what now? Much like the table after the Thanksgiving feast, the options for AT&T are messy and not very appealing.

AT&T is on the hook for a whopping $6 billion in spectrum and cash payments to T-Mobile parent Deutsche Telekom if the merger collapses, so it probably won’t just throw up a white flag. Withdrawing the FCC application now simply gives AT&T an opportunity to make major revisions, and indeed, there are reports Ma Bell is busy engineering an alternative proposal that would pare off as much as 40% of T-Mobile USA’s assets and sell it to Leap Wireless, the outfit behind the Cricket prepaid service, and/or rival prepaid provider MetroPCS.

That still won’t appease the DOJ, so it is likely AT&T still will have to defend itself in the lawsuit, the opening arguments for which will start Feb. 13.

Nor is it a sure thing the FCC will view a pared down acquisition more favorably. It already has issued the draft staff report opposing the original deal, and any amended proposal will face similar critical scrutiny. Even if AT&T beats the DOJ in court, it will face an FCC already soured to the merger and will have to make big concessions to win approval. The upshot AT&T would likely acquire far less of a T-Mobile asset than it originally envisioned, calling into question whether the effort was worth the result.

All in all, unlike Thanksgiving, the leftovers from this turkey of a deal won’t be better the next day.