Post Mortem on AT&T's $39 Billion T-Mobile Bid: BSN was Right from Beginning

Monday afternoon, AT&T tossed in the towel and did an about face. Effectively, the US Department of Justice (DOJ) antitrust enforcers and Federal Communications Commission (FCC) regulators killed their $39 billion acquisition of T-Mobile USA, ending a nine-month fight and leaving both carriers wondering how to save face. BSN* has predicted this failure since the beginning.


The unfortunate map for AT&T: network map overlaps with T-Mobile USA on basically all the large markets. Credit: American Roamer

Things appeared to be moving along in AT&T's favor from April's announcement until early August when AT&T attorneys mistakenly sent an incriminating internal document to the FCC. The unredacted internal letter says AT&T could spend $3 billion to $5 billion and provide true fourth generation - LTE (Long Term Evolution) coverage to 95 percent of the USA, instead of buying T-Mobile USA and paying $39 billion. This killed AT&T's key talking point with regulators and the press. AT&T claimed that they need T-Mobile to increase LTE network coverage from 80 percent to 97 percent of the population.

On August 30, the US DOJ sued to block AT&T's proposed $39 billion acquisition of T-Mobile USA saying the deal would "substantially lessen competition" in the wireless market.

All along AT&T has been applying a lot of lobbying pressure on Congress. On September 20th, 100 House Republicans signed a letter urging the Obama Administration to resolve the DoJ anti-trust lawsuit and let AT&T buy T-Mobile USA. Research shows that 99 of those 100 Republican Congressmen have received political donations from AT&T lobbying efforts since 2009, according to a Bloomberg review of campaign finance records. The article says AT&T lobbying has given $963,275 to those US lawmakers who are urging approval of the T-Mobile USA deal.

The Republicans were not alone in asking President Barack Obama to direct the Justice Department to settle the antitrust lawsuit. All 15 of the Democratic lawmakers, who signed their letter the same week as the Republicans, have benefited from AT&T’s lobbying money. In the 2010 election cycle, these Democratic lawmakers, were lobbied to the tune of nearly $16 million and almost $2 million in campaign contributions. Thus, AT&T has spent many of million dollars attempting to influence Congress. More specifically they tried to have Congress influence the President to make the US DOJ quickly settle their anti-trust lawsuit against AT&T's buyout of T-Mobile USA.

During November, the FCC released a 109-page report on the buyout proposal. The FCC stated that AT&T's acquisition of T-Mobile would not be in the public's interest, because the merger would "substantially lessen competition, and limit consumers' choice in wireless providers and raise prices for mobile customers." The report showed that AT&T was saying one thing in public, but documented the very opposite – claims of increased jobs and T-Mobile USA spectrum was needed to deploy LTE were shown to be false with AT&T's own documents.

On November 24, AT&T and Deutsche Telekom pulled their applications to the FCC, with AT&T announcing the same day that it would record $4 billion in costs this quarter to reflect the risk of the deal collapsing.

Someone at AT&T's government relations department should be looking for new work very soon. Because, that someone sent up the corporate flagpole the idea which lead to the largest merger and acquisition termination fee of all time [Ed. $4 billion]. It appears that someone was fundamentally clueless about potential government opposition. James W. Cicconi is General Counsel and Executive Vice President for Law & Government Affairs at AT&T. In that capacity, he oversees one of the largest corporate legal and regulatory organizations in the US.

Sprint - along with regional carrier C Spire had sued to stop the merger - said in a statement that AT&T's move was the "right decision for consumers, competition and innovation in the wireless industry." Vonya B. McCann, senior vice president of government affairs at Sprint said "From the beginning, Sprint has stood with consumers who spoke loudly and clearly that AT&T's proposed takeover of T-Mobile would create an undeniable duopoly that would have resulted in higher prices, less innovation and fewer choices for the American consumer."

Charles Golvin, an analyst with Forrester Research said: "I think he overreached. They overestimated their ability to influence the regulatory agencies and influence that process. Now they are paying the price."


AT&T share value 12-19-11 – Source: www.wsj.com

Tuesday, AT&T shares rose 0.5 percent to $28.89 at 9:42 a.m. New York time and had lost 2.2 percent year to date. Deutsche Telekom shares fell as much as 2.2 percent and were down 0.2 percent at 8.88 Euros. Deutsche Telekom had planned to use the proceeds of the $39 billion deal to cut debt by 13 billion Euros ($17 billion) and repurchase 5 billion Euros of its shares. The company also needs funds to upgrade fiber and wireless networks in Germany and other European markets.

Harold Feld, legal director of Public Knowledge said:

"In this age of cynicism, it is important for the American people to see that Washington does not always go to the highest bidder. The Department of Justice and the Federal Communications Commission stood up to tremendous lobbying pressure as AT&T spent tens of millions of dollars trying to push this merger through.

"We hope that AT&T and T-Mobile will focus on deploying the best, most competitive networks possible rather than trying to merge to duopoly. These businesses are fundamentally sound, and have what it takes to bring broadband and jobs to America on their own. We look forward to seeing them rethink what's possible, rather than trying to rule the air.

"We are thankful that the proposed AT&T and T-Mobile merger is now officially dead. The unthinkable merger would have led to higher prices and fewer choices for consumers, less innovation, and the loss of American jobs."

Deutsche Telekom still has to fix T-Mobile USA's business plans so they gain customers, rather than slowly loosing them. T-Mobile USA is the only wireless carrier of the top four which does not offer the Apple iPhone. Many of the regional carriers as well as AT&T, Sprint, and Verizon are making the switch to LTE. What is amazing in the fall of 2008 Deutsche Telekom was one of the first to test LTE.

Possibly at CES 2012, the carriers will have announcements about what their next steps will be for gaining spectrum, gaining customers, and new device offerings.