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November 28, 2011

AT&T, T-Mobile Pull Merger Application with FCC, Vow to Push Forward with Justice Department Suit

By Beecher Tuttle, TMCnet Contributor

With AT&T's proposed $39 billion acquisition of rival carrier T-Mobile (News - Alert) in serious jeopardy, the two companies on Thursday pulled their application with the FCC (News - Alert), one of the two federal bodies that formally have objected to the deal. AT&T has also set aside the $4 billion in fees that it would owe T-Mobile's parent company, Deutsche Telekom (News - Alert), if the deal were to fall apart.



While the moves suggest that the waving of the white flag may be near, AT&T is putting up a strong front, claiming that it is withdrawing the application only to concentrate on its upcoming antitrust suit with the Justice Department, set to begin in February. The company would then reapply with the FCC after winning the suit or inking a settlement deal with the Justice Department.

Still, the decision casts greater doubt over a deal that has met resistance from lawmakers, consumer interest groups and fellow carriers, who say that it will harm competition, increase telecom prices and lead to considerable job losses. The move came just two days after FCC chair Julius Genachowski said that he would send the case to an administrative law judge for review, traditionally the first step in an official opposition to a merger.

"The record clearly shows that -- in no uncertain terms -- this merger would result in a massive loss of U.S. jobs and investment," an unnamed FCC official told the New York Times last week.

Although AT&T has vowed to continue its legal push, analysts believe that pulling the application is a stall tactic that will allow officials to address concerns that the deal will create a duopoly, headlined by AT&T and Verizon (News - Alert), which would control nearly 80 percent of the wireless market.

Bloomberg has reported that AT&T is considering selling off as much as 40 percent of T-Mobile's assets to appease the FCC and the Justice Department. The biggest problem with this plan, obviously, is that AT&T couldn't sell mobile spectrum or wireless assets to Verizon, the nation's largest carrier, as that would only encourage a duopoly. AT&T would instead have to target smaller carriers like Sprint (News - Alert) or MetroPCS.

Analysts polled by Bloomberg find this to be very unlikely, meaning that an eventual showdown with the Justice Department is inevitable.

“If there were a last, best offer to be made, they would have made it a long time ago,” Craig Moffett, an analyst at Sanford C. Bernstein & Co., told the news source. “It’s very hard to envision a solution that would satisfy the problems the DOJ found with the deal. Realistically, AT&T is going to take its chances in court in February. It’s all or nothing.”

AT&T may also find itself in another legal battle as to whether it needs the FCC's permission to withdraw the application, and if it will be allowed to reapply after its suit concludes with the Justice Department. Agency officials disagree with the carrier's claim that it can pull the application without prejudice.


Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Rich Steeves

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