AT&T Merger Officially Dead

Posted by Sam Churchill on

AT&T said today that has agreed to end its bid to acquire T-Mobile USA, which began in March of this year. T-Mobile’s CEO Philip Humm announced the end of the deal before T-Mobile’s 37,000+ employees.

AP reports the company called on the government to quickly approve its purchase of unused spectrum from Qualcomm and come up with legislation to meet the nation’s long-term needs. The decision to kill the merger puts an end to a nine-month quest by the nation’s second- and fourth-largest wireless operators.

The actions by the Federal Communications Commission and the Department of Justice to block this transaction do not change the realities of the U.S. wireless industry. It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately. The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled.

“AT&T will continue to be aggressive in leading the mobile Internet revolution,” said Randall Stephenson, AT&T chairman and CEO. “Over the past four years we have invested more in our networks than any other U.S. company.

As a result, today we deliver best-in-class mobile broadband speeds – connecting smartphones, tablets and emerging devices at a record pace – and we are well under way with our nationwide 4G LTE deployment.

…To reflect the break-up considerations due Deutsche Telekom, AT&T will recognize a pretax accounting charge of $4 billion in the 4th quarter of 2011. Additionally, AT&T will enter a mutually beneficial roaming agreement with Deutsche Telekom.

The Justice Department said that the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States. Deputy Attorney General James Cole said the merger would result in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives. The DOJ’s complaint (pdf, 25 pages), was filed in March.

By some accounts, Randall Stephenson, chairman of AT&T, created a merger plan that was long on hubris and short on value, making it easy to blow up. AT&T’s own legal documents put the value of T-Mobile’s spectrum at $3.8 billion.

T-Mobile USA says it will receive Advanced Wireless Solutions (AWS) 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), as well as a long-term national UMTS roaming agreement with AT&T.

AT&T values the spectrum at its 2006 price while T-Mobile values it in current dollars. That adds close to $2 billion in value to the breakup, reports the NY Times. AT&T’s transferred AWS spectrum was probably 10 MHz C block licenses bought by AT&T (Cingular) in 2006. T-Mobile already had a whopping 30 MHz of AWS in New York, Chicago, Phoenix, LA, and Seattle.

According to earlier figures from Thomson Reuters, the AT&T/TMobile deal would have meant about $150 million in fees for the seven banks that were given credit for working on the deal — Greenhill & Co., J.P. Morgan, Evercore Partners, Morgan Stanley, Deutsche Bank, Credit Suisse and Citigroup.

AT&T’s Breakup Fee will be largely tax deductible which may please some Republicans in Congress.

Verizon announced in November it was buying Nationwide AWS Spectrum from Cable operators for $3.6 billion, taking out AT&T’s plan “B”. On Friday, Cox Communications agreed to sell its 20MHz slice of wireless spectrum to Verizon Wireless for $315 million. As part of the deal, Verizon and Cox will resell each others residential and commercial services.

With Verizon now partnering with Big Cable instead of Sprint, the ecosystem has been altered. Sprint may be looking for some kind of new consortium to replace it’s killed off cable/WiMax package. The next move could be from the FCC, authorizing Dishes’ Ancillary Terrestrial Component reuse of their satellite spectrum by terrestrial phones (like they did for Lightsquared).

T-Mobile USA and AT&T still need spectrum. All eyes are now on Dish Networks which has 40 MHz of MSS spectrum in the 2.1 GHz band. But Dish CEO Joseph Clayton said earlier this month they’d prefer to keep the spectrum and work with an existing mobile partner, such as T-Mobile or Sprint.

T-Mobile already has AWS antennas in place. No new towers or antennas required. T-Mobile could utilize Dishes’ 40 MHz to provide nationwide LTE coverage. It’s a cost/effective solution. Nothing to build. AT&T doesn’t have AWS infrastructure in place and neither does Dish.

Alternatively, Sprint’s Network Vision could dump Lightsquared’s 1.6 GHz antennas for Dishes’ 2.1 GHz antennas. Sprint might also host T-Mobile’s AWS spectrum on those antennas, too.

A consortium of tech companies could make either a Dish/T-Mobile or a Dish/Sprint deal happen. Still, AT&T may make Dish an offer they can’t refuse. Then T-Mobile would need spectrum from Clearwire at 2.6 GHz. Everybody’s got to go 2.6 eventually. That’s where the spectrum is.

UBS Research says the best-case scenario is for Dish getting a waiver without restrictions for ATC, then selling the S-band to AT&T for ~$0.69/MHz-POP (in-line with the Verizon/SpectrumCo deal), as well as the Dish 700 MHz licenses for ~$0.90/MHz-POP (similar to the AT&T deal with Qualcomm). This values the spectrum at $9.4B vs. the $3.6B Dish paid.

AT&T would have to pay top dollar for Dish and build the infrastructure to support it. It wouldn’t be cheap.

AT&T CEO Randall Stephenson could be pushing his luck.

Related DailyWireless stories includes; Dish CEO: T-Mobile Partnership?, Verizon Buying Nationwide AWS Spectrum from Cable, AT&T Merger in Trouble, AT&T Says 700 Mhz Expensive, AT&T/T-Mobile Merger: End Game?, AT&T/T-Mobile Merger: Unlikely?, Lightsquared Battles The Force , AT&T Merger in Trouble, Justice Seeks to Delay AT&T Suit, Merger Salvage Plan by AT&T, DOJ Blocking AT&T/T-Mobile Merger, AT&T Merger: More Heat, AT&T Merger: Yea & Ney, FCC Receives Pro & Con Support for ATT Merger, LTE Spectrum: It’s War , Spectrum Drama: Made for TV, AT&T MediaFLO Spectrum: More Review, T-Mobile Cuts Prices, FCC: Show Us Your Spectrum Scarcity, AT&T, Combining AWS and 700 MHz: Why?, Dish LTE-Advanced Called “Ollo”, Dish Talks Up Terrestrial LTE, Charlie Ergen’s Spectacular Triple Play, Charlie’s Big Play, EchoStar Closes $2B Hughes Deal,

Posted by Sam Churchill on Monday, December 19th, 2011 at 2:16 pm .

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