Judge grants stay in antitrust case as AT&T rethinks T-Mobile deal
AT&T Inc. is considering whether to throw in the towel on its attempt to buy T-Mobile USA for $39 billion, which would leave its smaller rival searching for another strategy to compete in the ever-tougher wireless world.
AT&T, the Justice Department and T-Mobile parent Deutsche Telekom were granted court approval Monday to halt all proceedings in the government’s antitrust case against the acquisition for a month while the two wireless carriers figure out what to do next.
AT&T said it and Deutsche Telekom would use the time “to evaluate all options,” and both agreed with a court order to decide “whether they intend to proceed” with any transaction.
AT&T insisted that it still was committed to the deal. But the chances that it will be completed are shrinking by the day amid strong opposition from government regulators and a September deadline to close the complex transaction, said Jeffrey Silva, a telecommunications analyst with Medley Global Advisors.
“The odds are pretty significant that the deal — at least the one that was originally proposed — is not going to happen,” Silva said. “In recent weeks, what’s come through to me loud and clear is that the Obama administration just does not want this deal to happen, period, in any form.”
Opponents of the merger were quick to advise the companies to kill the deal. That would mean that AT&T would have to give a $4-billion breakup package to T-Mobile, although reducing that cost is probably one option the companies are discussing, analysts said.
The deal’s failure would have major implications for both companies.
AT&T would have to dig into its pockets for the breakup package, which includes $3 billion in cash and $1 billion in airwaves rights. But the wireless giant could handle it, Silva said.
The company recently said it could take a $4-billion charge against fourth-quarter earnings should the deal fall through. AT&T had about $10 billion in cash on hand as of Sept. 30 and posted a third-quarter profit of $3.8 billion, which was viewed as a sluggish performance.
For Deutsche Telekom, the collapse of the deal would mean trying to resuscitate T-Mobile after 10 months of uncertainty or finding another buyer. But the German company also might take less in breakup money to get out of the transaction now and try to pursue other options for T-Mobile, Silva said.
“T-Mobile and its parent have to decide how long they can remain in this holding position before they go forward and try another strategy,” he said.
Analysts have noted that Deutsche Telekom’s options are limited because T-Mobile’s technology is different from that of larger rivals Verizon Wireless and Sprint Nextel Corp. and from many smaller wireless carriers.
AT&T said the companies asked for the delay to see if there was a way to rescue the transaction.
“We are actively considering whether and how to revise our current transaction to achieve the necessary regulatory approvals so that we can deliver the capacity enhancements and improved customer service that can only be derived from combining our two companies’ wireless assets,” AT&T said.
A company spokeswoman would not elaborate on the options.
AT&T and Deutsche Telekom announced the deal in March, touting it as a boon to consumers and the economy. The companies said AT&T would use T-Mobile’s airwaves to expand its fourth-generation wireless service to 95% of the U.S. population, and the investment would directly and indirectly create 55,000 to 96,000 new jobs.
But public interest and consumer groups, along with some competitors, especially Sprint, charged that allowing AT&T, the second-largest wireless carrier, to acquire T-Mobile, the fourth-largest, would lead to higher prices for consumers.
Under the deal, AT&T would become the largest wireless company, and along with current No. 1 Verizon Wireless would control 75% of the market.
Last summer the Justice Department sued to block the deal, saying it would harm competition. In November the staff of the Federal Communications Commission, which also must approve the deal, issued a blistering report saying the deal was not in the public interest because it would lead to higher prices and job losses.
FCC Chairman Julius Genachowski signaled his opposition to the deal last month.
AT&T and Deutsche Telekom have been trying to maneuver around the regulatory opposition. With the Justice Department antitrust suit headed for trial early next year, the companies withdrew their FCC application in November to focus on the litigation.
But Justice cited that withdrawal in a hearing Friday to argue that the lawsuit no longer needed to be expedited because there was no application on which to base the lawsuit.
The withdrawal angered U.S. District Judge Ellen Segal Huvelle, who accused the companies of trying to manipulate the process to their benefit and potentially wasting time and taxpayer money to do so.
“We have no confidence that we’re not being spun,” Huvelle said at the hearing.
In granting a delay in the case, Huvelle ordered the companies to provide a report by Jan. 12 “describing the status of their proposed transaction, including discussion of whether they intend to proceed” with an acquisition.
To move forward with a trial, Huvelle said, AT&T and Deutsche Telekom also must provide specific plans for how they intend to obtain FCC approval. She will hold a hearing on the case six days later.
A delay in the antitrust trial could make it difficult for AT&T to meet a Sept. 20 deadline for winning the antitrust case and reapplying and obtaining FCC approval for the deal.
