AT&T said today that it has withdrawn its bid to acquire T-Mobile USA in a deal worth $39 billion.
The company said it would take a $4 billion charge in the fourth quarter as part of the break-up fee with Deutsche Telekom. The companies had agreed to this break-up fee when they formed the deal, which was announced in March. AT&T said the companies will also enter into a mutually beneficial roaming agreement.
There had been much speculation about how long AT&T would fight to keep its deal with T-Mobile alive. In August, the U.S. Department of Justice sued to block the merger. And in November the Federal Communications Commission indicated it opposed the merger as well. In both cases, the Justice Department and the FCC said that the merger between the second largest and fourth largest wireless phone companies in the U.S would harm competition. The FCC went as far as to say in its report of the merger that the deal would result in massive layoffs and would not be in the public interest.
Despite its arguments in defense of its merger with T-Mobile, AT&T clearly saw the writing on the wall. The company withdrew its application at the FCC in November and told investors it would likely take a $4 billion charge to pay Deutsche Telekom if the deal could not be completed in a timely fashion. And just last week, AT&T asked the federal court hearing its antitrust case to put the legal proceedings on hold until mid-January.
There had been talk that AT&T was willing to give up some portions of T-Mobile to keep the deal alive. Some reports indicated the company was willing to sell off more than 30 percent of T-Mobile's assets to satisfy antitrust concerns. Leap Wireless was suggested as a potential bidder for those assets. And AT&T was supposedly in talks with the company. Satellite TV provider Dish Network was also supposedly in talks for T-Mobile's assets as part of a deal.
Earlier today, The Wall Street Journal reported that these talks were not going well, and that AT&T was finally considering giving up on its bid.
It's unclear what will happen next to either AT&T or T-Mobile. T-Mobile's parent company, Deutsche Telekom, has made it clear that it does not want to invest further in the U.S. wireless market. The company may look to sell its assets to other smaller carriers, such as Leap Wireless or MetroPCS, two prepaid providers that are looking to build nationwide footprints. Dish Network may be interested in the carrier's assets. Dish has acquired spectrum it can use to build a wireless broadband network and may look to T-Moblie's spectrum and customer base as a good opportunity.
The possibility of working with cable operators which have also had wireless aspirations was taken off the table earlier this month when Verizon Wireless announced it was buying spectrum from SpectrumCo, a consortium of cable operators that included Comcast and Time Warner Cable. SpectrumCo had bought Advanced Wireless Spectrum in the FCC's auction when T-Mobile acquired its AWS spectrum. Verizon plans to buy the 20MHz of spectrum these cable operators own for $3.6 billion.
It's also unclear what AT&T will do next. AT&T still faces a spectrum crunch. The company said in its statement that it has entered into a roaming agreement with Deutsche Telekom so that it can use the T-Mobile network, but it did not elaborate further.
Access to wireless spectrum was at the heart of AT&T's argument for buying T-Mobile. AT&T argued that it needed T-Mobile's so that it could keep up with current and future demand for broadband wireless data. Specifically, it said the T-Mobile AWS spectrum would help it build out its 4G LTE network to more users.
The problem that AT&T and other wireless carriers face is that there is no more spectrum coming up for auction in the foreseeable future. The FCC has said it plans to make 500MHz of spectrum available over the next decade. But even that spectrum, if it ends up being identified and cleared, may not be enough to satisfy growing demand.
In its press release, AT&T said that blocking the merger with T-Mobile is essentially blocking the company's path to more spectrum, which will in turn hurt consumers.
"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."
The company's CEO Randall Stephenson said AT&T will continue to invest in its wireless network. But he chastised regulators for putting a stop to the merger. He said regulators need to "allow the free markets to work so that additional spectrum is available to meet the immediate needs of the U.S. wireless industry."
He also called on lawmakers to approve legislation so that more spectrum can be auctioned off.
"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," Stephenson said.
FCC Chairman Julius Genachowski took issue with AT&T's assertions that the deal would create jobs. But he agreed with AT&T's CEO regarding legislation to approve more wireless auctions.
"The FCC is committed to ensuring a competitive mobile marketplace that drives innovation and investment, creates jobs and benefits consumers," Genachowski said in a statement. "This deal would have done the opposite. The U.S. mobile industry leads the world in mobile innovation, and we agree with AT&T that Congress should pass incentive auction legislation that will unleash new spectrum for mobile broadband."
Meanwhile, the Department of Justice issued a statement stating that consumers won as a result of AT&T and Deutsche Telekom withdrawing their merger for consideration.
"This result is a victory for the millions of Americans who use mobile wireless telecommunications services," Deputy Attorney General Jame M. Cole, said in a statement. "A significant competitor remains in the marketplace and consumers will benefit from a quick resolution of this matter without the unnecessary expense of taxpayer money and government resources."
Updated 2:21 p.m. PT: This story was updated with background information and analysis. It also includes a statement from AT&T's CEO Randall Stephenson.
Updated 5:20 p.m. PT: Comments from FCC Chairman Julius Genachowski and from a Department of Justice official were added to this story.