Facing growing opposition, telecommunications giant AT&T announced Thursday that it is withdrawing its merger plan from further consideration by the Federal Communications Commission. Instead, it said it would concentrate first on winning approval from the U.S. Justice Department, which sued to stop the purchase. And, in case the deal collapses, the company said it's setting aside $4 billion it would owe in breakup fees to T-Mobile's German owner, Deutsche Telekom.
The company's decision was announced days after FCC Chairman Julius Genachowski said he opposed the merger, which would create the nation's largest wireless company. Genachowski proposed an administrative hearing — a rare and lengthy process last used for a major deal in the 1960s.
The two companies announced the huge merger this spring, saying the deal would enable AT&T to speed up the spread of fast, next-generation 4G wireless service while increasing competition and lowering prices.
But a slew of opponents — including government agencies, consumer advocates and competitors such as Sprint Nextel Corp. — objected. They argued that a combination of second-ranked AT&T with fourth-ranked T-Mobile would leapfrog current subscriber king Verizon Wireless. The hybrid company would end up with 75% of wireless subscribers and nearly 80% of revenue, according to the think tank American Antitrust Institute.
That has sparked dire predictions of shrinking competitive options that would cause tens of millions of customers to pay more for deteriorating service while also trampling demand for technicians and engineers. The marriage, many fear, would also trigger as many as 20,000 layoffs as the companies reduce redundancies in accounting, marketing and other departments.
"This merger would kill competition, put tens of thousands of people on the unemployment line, and leave all of us paying more for our mobile phones," Craig Aaron, chief executive of advocacy group Free Press, said in a statement. "No amount of spin can change the fact that this deal is cooked. It's time for these companies to walk away."
AT&T has said that it intends to invest $8 billion to expand the broadband network, including to rural areas, and plans to create 96,000 jobs while doing so. The company has also promised to bring 5,000 call center jobs to the U.S. from other countries.
In joint statements quietly released Thanksgiving Day — when the markets were closed — the companies said they would try again for the FCC's go-ahead "as soon as practical" and stressed that they "are continuing to pursue the sale."
AT&T declined to comment further.
To succeed, the deal must clear both the FCC and the Justice Department — a requirement that is looking increasingly tough.
"The chances that AT&T will take over T-Mobile are almost gone," Gigi B. Sohn, president of consumer advocacy group Public Knowledge, said in a statement.
Sohn, whose group opposes the deal, said that AT&T's retreat "speaks volumes about the company's lack of confidence."
She and other consumer advocates said they suspect that the telecom giants withdrew their applications to prevent the FCC from publicly disclosing findings in a hearing about the merger's potentially ruinous consequences on competition and pricing for services.
Andrew Jay Schwartzman, policy director of nonprofit law firm Media Access Project, said AT&T should give up its bid for T-Mobile instead of trying to retrench under the radar.
"This turkey is too big to be hidden by releasing it on Thanksgiving," he said in a statement. "It is an act of desperation which will only hurt their shareholders by delaying the inevitable."
Stifel Nicolaus & Co. Inc. analysts agreed, saying in a report Wednesday that AT&T faces "an uphill battle." Genachowski's hearing proposal was "another blow" to the merger that added a "new layer of resistance" that could "prove insurmountable," the report said.
And if regulators reject the merger, AT&T will have to hand Deutsche Telekom a hefty divorce package, including more than $3 billion in cash as well as airwaves and a roaming agreement worth billions more — making it among the largest breakup fees in recent memory.
Late Wednesday, both companies electronically filed to abandon their FCC applications via a brief message through the agency's online system.
FCC spokeswoman Tammy Sun said "the commission will consider that request." The agency could take one of three routes.
Regulators could grant the withdrawal and allow the wireless firms to relaunch their applications at any time. Or they could approve the withdrawal with prejudice, barring AT&T and T-Mobile from returning to the agency with the deal, effectively killing it.
The FCC could also decide that, because the approval process is already in the advanced stages, they want to go ahead with a trial-like hearing sometime in 2012 — which analysts said could take more than a year.
If so, it would be the first time since 2002 that a merger headed to an administrative law judge. Back then, a $15-billion deal between EchoStar Communication Corp. and satellite rival and DirecTV parent Hughes Electronics Corp. was bound for a hearing but collapsed before reaching the court.
If AT&T and T-Mobile manage to avoid a hearing, they said they plan to "consolidate their strength and to focus their continuing efforts" on winning or settling a civil antitrust lawsuit filed by the Justice Department in August. The suit, backed by California Atty. Gen. Kamala D. Harris and several other state attorneys general, seeks to block the deal.
Amid the back-and-forth, consumer advocates such as Sohn of Public Knowledge said the companies were wasting their time. "We hope," she said, "that AT&T would similarly withdraw its application from the Justice Department and end this charade once and for all."