Tough sell
November 24, 2011
American telephone giant AT&T, an experienced navigator of Washington politics, has shown an unlucky hand at winning approval of its proposal to acquire rival T-Mobile USA, which is owned by Deutsche Telekom.
In a bid to block the $39 billion (52 billion euros) deal amid growing concerns about its impact on competition, the Federal Communications Commission on Thursday asked for an administrative hearing.
That move comes on the heals of a civil lawsuit filed in August by the US Department of Justice, which also questions the usefulness of such a telecoms merger for users of services.
Plenty of lawsuits
The Justice Department said the merger "would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting 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 daily lives."
Other lawsuits have since followed from several states' attorney generals who also haven't bought AT&T arguments that its merger with T-Mobile would create jobs and speed up deployment of next-generation wireless technology. Rivals Sprint and Verizon have adamantly opposed the deal as well.
It was, in particular, an unusual step for the FCC, which hasn't tried to block a telecoms deal since 2002. AT&T and T-Mobile responded by withdrawing pending applications to the telecom watchdog.
In a statement, however, both companies said they will continue to pursue the deal and focus their "continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice" either through pending litigation in a Washington, D.C. court or through "alternative means."
Poor odds
Should the deal collapse, AT&T must give T-Mobile a $3 billion break-up fee in addition to another $3 billion worth of wireless spectrum.
On Thursday, the US company also announced plans to record costs of $4 billion charge in the fourth quarter if the deal, indeed, collapses.
In a report on the credit implications for AT&T and Deutsche Telekom, Moody's Investors Services estimates the odds of the deal ever happening at less than 50 percent.
Moody's expects that if the US government forced AT&T to accept concessions such as selling 25 percent of T-Mobile, a lackluster market for those assets would likely prompt the American company to walk away.
As for T-Mobile, Moody's believes Deutsche Telekom may try to sell and leaseback its towers to save money, or reach a network-sharing deal with AT&T or even exit the US completely to focus on Europe.
Author: John Blau (dpa, AFP)
Editor: Cyrus Farivar