"AT&T is the T-1000 of corporations - no matter how many pieces you break it into, it always comes back together." -- Stephen Colbert on the 2007 rebranding of Cingular as AT&T, Inc. (T)

AT&T's purchase of Deutsche Telekom AG's (ETR:DTE) T-Mobile USA would have granted it an almost complete monopoly on GSM phones in the U.S., where 3G technologies like GSM still dominate the majority of customer plans.  Furthermore, the deal would have made AT&T the nation's largest carrier -- with Verizon Communications, Inc. (VZ) the pair would own 80 percent of U.S. cell phone contracts.  

But alas the U.S. Department of Justice decided that AT&T's process to resurrect itself was anticompetitive and violated U.S. federal antitrust laws, and thus filed suit to block the deal.  That suit will effectively kill the deal, according to most.

I. AT&T Meets With DOJ

Or will it?

AT&T is reportedly engaging in a round of last minute negotiations with the U.S. Department of Justice to try to cut a deal to save the acquisition.  Wayne State University law professor Stephen Calkins says such a deal could be attractive to the DOJ, stating in a Reuters interview, "It is always scary to go off to litigation. I suppose there's a chance that the government could get cold feet."

The company expressed willingness to divest up to 10 percent of T-Mobile's airwaves and customers in order to escape the perception it was building a monopoly.  A source close to the deal told Reuters, "AT&T is pretty determined that they can find a solution, and they are pretty confident."

II. DOJ Doesn't See Eye-to-Eye with AT&T

But the DOJ apparently wants the company to divest at least 25 percent of T-Mobile -- something AT&T doesn't want to do.  Bob Doyle, a former antitrust enforcer now in private practice, says finding an appropriate buyer would be a daunting difficulty even if AT&T consented to the provision.  He states, "Verizon's a no go. Sprint [Nextel Corp. (S)] may be a no go also."

As the DOJ filed its 22-page lawsuit Wednesday, sources close to AT&T say the company is growing frustrated.  They remark, "That was part of the frustration in that AT&T expected that they would have had much more meaningful discussions and figure out where everyone was, and whether they could close the gap."

Another source said that while AT&T wants to work out a deal, the discrepancy in the divestiture figures is slowing negotiations.  They state, "I don't know if and when a new meeting is scheduled, given yesterday's news."

III. AT&T Arms Itself for a Legal War

AT&T does have some things working in its favor.  

While the DOJ  did successfully block an attempt by Verizon Communications, Inc. (VZ) subsidiary MCI, Inc. to purchase Sprint Nextel Corp. (S) (at the time Sprint) in the 1999 Clinton-era and EchoStar Communications Corp's (SATS) deal to buy Hughes Electronic Corp's DirecTV in the 2001 Bush-era, it has lost other antitrust fights.

Under the Bush administration, Oracle Corp. (ORCL) beat the U.S. DOJ in court in 2004 to acquire Peoplesoft, Inc.  And also under the Bush administration's watch the DOJ floundered in a bid to stop SunGard Data System Inc. from buying Comdisco Inc.

T-Mobile and AT&T also have some high-profile legal talent at their disposal.  At AT&T's side is Richard Rosen of Arnold & Porter LLP, a former communications sector head of the DOJ's antitrust division.  Mr. Rosen oversaw Cingular's purchase of AT&T Wireless and later purchases of Dobson Communications, Centennial Communications, and wireless properties divested by Verizon and Alltel.

In T-Mobile's corner is George Cary of Cleary Gottlieb Steen & Hamilton LLP, who successfully defeated the DOJ in allowing Staples, Inc. (SPLS) and Office Depot, Inc. (ODP) to merge.  States one antitrust veteran, "He's one of the best. He's exceptional. George Cary is the Lou Gehrig of antitrust."

Also working in AT&T's favor is U.S. District Judge Ellen Segal Huvelle, the presiding judge in the case, has a reputation for speedy rulings.  The trial could occur within two months, according to sources.  And while Judge Huvelle has previously admonished the pair for providing lacking information to support their claims, they will soon get enough chance to try to improve their fortunes.