As expected, AT&T and T-Mobile USA appear to be close to scrapping their proposed merger, having withdrawn their application to the Federal Communications Commission.
Deutsche Telekom, the parent of T-Mobile, and AT&T said in a joint statement that they intend to pursue the $39 billion merger and will prepare for a federal antitrust lawsuit that is seeking to block the deal. But the companies also said that AT&T intends to take a $4 billion charge to earnings to reflect the potential breakup fees that AT&T must pay to Deutsche Telekom if the deal does not go through.
The actions followed the decision earlier this week by Julius Genachowski, the F.C.C. chairman, that the merger does not meet the commission’s standard for approval. Mr. Genachowski began circulating to other commissioners a proposed order to refer the case to an administrative law judge, the first step toward a commission move to block the deal.
The application withdrawal appears in part intended to prevent the F.C.C. from making public AT&T and T-Mobile records about the potential effects of the merger. The companies have maintained publicly that the deal would not lessen competition and that it would create jobs in the United States. But those points have been disputed by the Justice Department and the F.C.C., and F.C.C. officials have said that AT&T’s confidential filings indicate the merger would kill jobs.
But even if the FCC approved the deal, the DoJ is suing to block it. AT&T and Deutsche Telekom said they would return to the FCC process if they secured approval from the DoJ first.
In a statement, Deutsche Telekom said that the withdrawal “is being undertaken by both companies to consolidate their strength and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice. As soon as practical, Deutsche Telekom and AT&T intend to seek necessary F.C.C. approval.”
AT&T issued its own statement saying that the companies are taking this step “to facilitate the consideration of all options at the F.C.C.” The company said the $4 billion pretax charge, to be taken in the current quarter, reflects a $3 billion cash payment and $1 billion worth of cellular phone airwaves, or spectrum, that AT&T must pay to T-Mobile’s parent if the merger does not receive regulatory approval.
Analysts said the merger, badly needed by sub-scale T-Mobile USA — the smallest of the four U.S. national mobile operators — looked less likely than ever to succeed.
The Wall Street Journal wrote today:
“AT&T and Deutsche Telekom insisted they weren’t throwing in the towel. Their strategy is to try to strike a settlement with the Justice Department or beat the agency in a trial that begins Feb. 13, then reapply with the FCC for merger approval.
But it was clear that the odds have lengthened significantly for a deal that would have created the country’s largest wireless operator and which represented a huge gamble for AT&T Chief Executive Randall Stephenson.
“We view this as a step towards concession,” Bernstein Research analysts wrote in a note to clients Thursday.
For consumers and for the wireless industry, AT&T’s move raises the prospect of many more months of uncertainty. T-Mobile has been struggling to find its niche, losing 850,000 contract customers this year and failing to land the most sought-after device, Apple Inc.’s iPhone. Even if government officials succeed in blocking AT&T’s purchase of T-Mobile, analysts and investors expect Deutsche Telekom to try to find another way to get out of the U.S. market.
A failure of the deal would also send AT&T back to the drawing board for a strategy to shore up its network and compete with larger rival Verizon Wireless.”
Meanwhile, Sprint -Nextel is likely rejoicing over Thanksgiving with this announcement. The U.S.’s third largest cellular operator has vigorously faught the AT&T – T-Mobile merger on the grounds that it would stifle wireless network competition. AT&T countered that by stating the merger would bring LTE to rural areas using T-Mobile’s existing cell towers there. It doesn’t really seem to matter anymore…….
Happy Thanksgiving to all in the U.S.!