AT&T, T-Mobile Merger Dead In The Water
December 20, 2011

AT&T, T-Mobile Merger Dead In The Water

Deutsche Telekom AG (DTAG), the German parent of T-Mobile USA, criticized US regulators´ opposition to AT&T Inc.´s proposed $39 billion acquisition of its US mobile phone company, that left the deal dead in the water, as AT&T said it will no longer pursue the deal.

Deutsche Telekom also offered no detailed plans of how it will bounce back from the AT&T deal, only assuring investors on Tuesday it was working on a long-term plan for its US wireless unit. DTAG has about a year before it needs to start a search for a new partner amid rising costs for improving its network.

AT&T will pay Europe´s largest telecommunications network $3 billion in penalties for breaking up the deal, which will cover T-Mobile´s expenses for the next 12 to 24 months, said Wolfgang Specht, an analyst at WestLB AG in Dusseldorf.

AT&T said the US governments efforts to block the deal will not change the problems faced by the mobile phone industry, and added both companies needs more airwaves to expand.

“In the long term, we need more spectrum and network capacity. We are working on that. But we will not speculate about any inorganic steps or deals,” Deutsche Telekom Chief Executive Rene Obermann told Reuters in a conference call.

T-Mobile USA, once a powerful competitor in the industry, has lacked badly in the spectrum it needs to build a network capable of handling the vast data volumes that US consumers and businesses demand on their smartphones.

T-Mobile USA ranks fourth among US carriers, behind Verizon, AT&T and Sprint, respectively. An approved deal between AT&T and T-Mobile USA would have made AT&T the largest cellphone company in the US.

Both companies withdrew their application to the FCC last month after chairman Julius Genachowski opposed the deal and called for a review of the proposal by a federal judge. The US Justice Department was also moving ahead with a lawsuit meant to block the deal as well.

Obermann had placed all his bets on the AT&T deal and, while DTAG is walking away from the break up with $3 billion in cash plus mobile spectrum in some US markets, analysts said he has lost a lot of valuable time and will still need to invest in the US market or find a new way to exit the country.

Will Draper, head of telecoms research at investment bank Espirito Santo, said the only long-term solution he saw for T-Mobile now was a merger with Sprint.

“If Deutsche Telekom wants to be in the United States on a 10-year view, that's what it has to do. It needs a bit of surgery now,” he told Reuters.

While T-Mobile will receive some spectrum, helping the company grow, it will not be enough to solve the entire problem.

“In the long term, we have disadvantages in scale and spectrum. In the coming months, we will think about how to have LTE (wireless network technology) offers despite scarce spectrum,” said Obermann.

Analysts said a collapse of the deal could also be a catalyst for the sale of its stake in Britain´s biggest mobile company Everything Everywhere, unless it manages to secure a deal with another US operator, such as Sprint.


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