AT&T said on Monday that its discussions with Deustche Telekom, which owns T-Mobile, had ended, citing intense federal scrutiny.
“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," AT&T said in a statement. "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."
That the two companies chose to abandon the deal is unsurprising since it has been imperiled for some time. Two different federal agencies -- the Federal Communications Commmission and the Department of Justice -- opposed it, and over the past month the outlook grew increasingly gloomy.
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After the DOJ filed an anti-trust suit in August, FCC Chairman Julius Genachowski announced Nov. 22 that he wanted to send the companies' application before a judge -- a clear sign that the deal was in trouble on that regulatory front. He also said the deal was not in the public interest.
Two days later, AT&T and Deustche Telekom asked to withdraw their application and focus on the DOJ's suit. After a public spat in which the FCC said it had to approve the withdrawal and AT&T threatened a lawsuit, the FCC accepted the withdrawal.
However, it still issued a staff report listing all of its problems with the acquisition. Chief among them was that AT&T would simply control too much spectrum in a massive percentage of the country's biggest markets. Needless to say, AT&T was miffed that the FCC went public and blasted the commission for being biased.
Shortly thereafter, the DOJ announced its desire to postpone the anti-trust suit until the two companies resubmitted with the FCC. The deal would have not only reduced the telecom market to three major companies -- Verizon, AT&T and Sprint -- but it would have taken out the main low-price competitor.
Yet though observers have been predicting failure for some time, this is still a major blow for both companies.
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AT&T will have to pay T-Mobile a $4 billion break-up fee without solving its spectrum problem -- the reason it pursued the deal in the first place. For Deustche Telekom, it prolongs its efforts to unload T-Mobile while scaring off certain potential suitors given the potential regulatory hurdles.
In terms of new suitors, Deustche Telekom may look to some of the far smaller telecom companies like MetroPCS and Leap. Alternatively, it could turn to DirectTV, which acquired wireless spectrum earlier this year.
"It would be as hard for Verizon as for AT&T," J.G Harrington, a telecommunications lawyer at Dow Lohnes, told TheWrap. "But a T-Mobile-Sprint deal would have a chance, certainly a T-Mobile-MetroPCS or T-Mobile-Leap deal could happen.
"Someone in private equity would have almost no trouble getting through, though then you ahve to ask who is going to do it," Harrington added.
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