AT&T Licking Its Wounds Over T-Mobile Collapse

AT&T threw in the towel and said it won't fight the U.S. government any more over its proposed acquisition of T-Mobile USA.
AT&T and Deutsche Telekom, the parent company of T-Mobile USA, made an official announcement on Monday explaining that the deal is off. AT&T has officially quit its attempt to buy T-Mobile USA, for which it would have paid Deutsche Telekom $39.5 billion.

AT&T blamed the U.S. government--particularly the Federal Communications Commission and the Department of Justice--for the deal's failure. The Department of Justice sued AT&T to block the merger in August, and the FCC released a report damning the acquisition in November. Both called the acquisition bad for competition and bad for U.S. consumers.

With the two government bodies aligned against it, AT&T had little choice other than to pursue a legal case it probably wouldn't have won or drop the deal entirely. Since AT&T owes Deutsche Telekom a sizable break-up fee, it was wise of AT&T to cut its losses and call it a day.

AT&T still thinks the government has erred in its decisions, saying in Monday's announcement that the growing need for spectrum still exists, and without combining AT&T and T-Mobile, U.S. consumers will be harmed.

"AT&T will continue to be aggressive in leading the mobile Internet revolution," said Randall Stephenson, AT&T chairman and CEO, licking the fresh wounds the failed deal has surely produced. "To meet the needs of our customers, we will continue to invest. However, adding capacity to meet these needs will require policymakers to do two things. First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the U.S. wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC. Second, policymakers should enact legislation to meet our nation's longer-term spectrum needs. The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to customer needs and market forces."

So what happens now?

First, AT&T has to cut a huge check to Deutsche Telekom. The break-up fee nets the German company $3 billion in cash. Second AT&T has to divest spectrum assets to T-Mobile USA. T-Mobile USA will receive a large package of AWS mobile spectrum in 128 Cellular Market Areas (CMAs), including 12 of the top 20 markets (Los Angeles, Dallas, Houston, Atlanta, Washington, Boston, San Francisco, Phoenix, San Diego, Denver, Baltimore and Seattle). That's a huge win for T-Mobile, which can use the spectrum to bolster its 3G/4G network. Third, AT&T will sign a roaming agreement that gives T-Mobile USA access to AT&T's HSPA network. The roaming agreement expands T-Mobile's serviceable footprint from 230 million POPs to 280 million POPs, an increase of more than 20%.

But those are the short-term effects of the deal's collapse. The more important question is what is AT&T going to do moving forward?

AT&T said it is already well underway in building its LTE 4G network. The LTE network is live in 15 markets across the U.S., covering about 70 million POPs. AT&T needs to expand its LTE network quickly, as Verizon, its main competitor, has already blanketed some 190 markets and 200 million Americans with LTE. AT&T has a lot of catching up to do.

Part of the reason AT&T wanted to buy T-Mobile was so that it could expand its LTE footprint to more than the 80% of Americans it says it can cover with LTE. T-Mobile's spectrum assets would have allowed AT&T to cover 97% of Americans with LTE, said the company. How AT&T will make up that difference isn't yet known unless it switches to its 850/1900MHz spectrum for 4G.

For its part, T-Mobile says its plans are unchanged. "What does this mean for T-Mobile USA customers? Our focus is unchanged: Make the latest mobile products and services affordable for everyone," said COO Jim Alling in company blog post.

There is that pesky spectrum problem T-Mobile is facing, but I am sure Deutsche Telekom has a plan to sort this all out. Right?

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