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AT&T and T-Mobile say they will continue to fight for the deal, but AT&T's accountants say it's likely to fail

AT&T, Inc.'s (T) acquire America's fourth largest carrier, Deutsche Telekom AG's (ETR:DTE) T-Mobile USA, could have been a blockbuster deal.  Had U.S. regulators bought into it, it would have made AT&T the largest wireless carrier in America and granted it a virtual monopoly on GSM (3G) service in the U.S.  The move would have left only three large nationwide carriers in the U.S., with two of them -- AT&T and Verizon Wireless, a joint venture between Verizon Communications, Inc. (VZ) and Vodafone Group Plc. (LON:VOD) -- holding a dominant 80 percent of the market.  Now it looks like acquisition may be dead.

But in regulatory court AT&T struggled to defend the deal, particularly when it came to proving that the deal would create jobs and consumers wouldn't be harmed.  At the end of August the U.S. Department of Justice delivered the first bad news for AT&T -- it was suing to block the merger.  AT&T vowed to fight the U.S. government in court, recruiting expensive antitrust lawyers.  Meanwhile state Attorney Generals began to come out for and against the merger, setting the stage for a grand battle.

That battle may never occur now.  On Tuesday a second U.S. government agency vowed to fight the merger.  U.S. Federal Communications Commission Chairman Julius Genachowski said he had "serious concerns" about the merger's affect on consumers.  He threatened to hold a second "hearing-like" trial, should AT&T manage to defeat the Justice Department in court.  

While business experts viewed the move as weaker than the DOJ's action, it appears to have been enough to do the trick.  AT&T and Deutsche Telekom have announced their decision to withdraw pending approval application with the FCC, in a move that may signal the end of Ma Bell's acquisition bid.

While both companies claim they're "continuing to pursue the sale", AT&T's accountants have taken a $4B USD pre-tax charge (loss) on its Q4 2011 sheet.  That charge covers the $3B USD in cash and $1B USD in spectrum that AT&T owes Deutsche Telekom if the deal fails.  Under U.S. accounting rules, placing such a charge means that accountants believe the event in question to be the most likely outcome.  In other words, AT&T now has indicated formally that the deal is unlikely to succeed.

AT&T party
AT&T's accountants expect the merger deal to fail.
[Image Source: 
Spencer Platt / Getty Images]

Commenting to Reuters AT&T and T-Mobile promise to throw whatever remaining strength they have behind fighting the DOJ lawsuit, ignoring -- for now -- the FCC complaint.

AT&T and T-Mobile state, "This formal step today is being undertaken by both companies to consolidate their strength and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice." 

Experts are now indicating that even if the AT&T deal fails, T-Mobile will likely try to sell the unit at a discount to Sprint Nextel, Corp. (S).  Alternatively it could opt to try to keep the struggling carrier, or to try to spin it off, perhaps merging it with a smaller profitable carrier like U.S. Cellular (USM).

Sources: Business Wire (Yahoo! Finance), Reuters, WSJ

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RE: That bit at the end...
By Shig on 11/24/2011 12:09:06 PM , Rating: 2
Either scenario would have been a net loss for the consumer. A real solution should be to remove barriers of entry for smaller businesses to compete against the big guys by opening networks, like other countries with cheap and fast access to internet and phones.

RE: That bit at the end...
By room200 on 11/24/2011 12:34:03 PM , Rating: 5
That's not likely to happen. What made America so great was that if you wanted to start a company, you could do so without needing to have millions and billions of dollars. Now the huge companies have bought most of the politicians who have created rigged system in favor of the big boys.

RE: That bit at the end...
By yomamafor1 on 11/24/2011 12:36:43 PM , Rating: 2
Except that there are a lot of industries that have naturally high barrier to entry, including telecommunication industry. The cost of setting up the antenna as the purchase of spectrum alone would've costed more than any new start ups.

RE: That bit at the end...
By Targon on 11/24/2011 1:33:33 PM , Rating: 2
So, what you propose is that companies that come out with a new technology should then just make their resources available for free to new smaller players that want to enter the market? How about Verizon being forced to open their cell phone towers for AT&T to use? What about the fiber that has to be connected to all towers to allow for customers to use them and switch between towers, should that be made open to any small carrier that doesn't have the resources to build their own infrastructure?

This is the problem, if the government wants to make these sorts of decisions, then they should require that the billions of dollars that PRIVATE companies have had to invest to grow their business be reimbursed by the government(which is broke and can't even pay employees without running a deficit these days).

Any company could theoretically build, or get access to a single tower and offer service to a tiny area, but to make a large network is what costs. Verizon gets federal dollars in subsidies for the local phone service that most people don't even use anymore, and they re-directs it to their cellular network. How's that for a rigged system?

RE: That bit at the end...
By room200 on 11/24/2011 4:53:23 PM , Rating: 2
Talk about totally missing the point.

RE: That bit at the end...
By FITCamaro on 11/24/2011 7:19:52 PM , Rating: 2
He got your point.

It's one that is pointless and naive. No company is going to innovate if they then have to share their innovation with others for free. Why would anyone build a network that they then have to compete with other carriers on?

America still lets people start companies. The wireless industry though is one of few that just has a very high cost of entry. To get into it you have to start small. You can't expect to just jump onto the national scene and expect to compete with the big boys.

Just another example of my generations "I want it now and don't want to have to work for it" attitude.

RE: That bit at the end...
By Targon on 11/24/2011 8:28:00 PM , Rating: 2
I wasn't suggesting that in any way, but all these people saying that any company should be able to just start a cell phone company should realize that THEY are expecting that Verizon and AT&T should just open their PRIVATELY owned networks to any other business.

RE: That bit at the end...
By room200 on 11/25/2011 10:28:31 AM , Rating: 2
My god you're ignorant. The point is not "letting" someone start a company. The point is, your company will never succeed against any large company, even if you have the money, because you have to have access to politicians and lobbysists. Even if you have new technology that threatens to challenge the big boys, it'll likely never see the light of day.

You have a chip on your shoulder for some reason. It's evident with every post you make. Evidently, you think that the big guys have the right to do whatever they want because one day "I'll be them".

I find it laughable that you typed YOUR post, yet you called ME naive. LOL

RE: That bit at the end...
By Black1969ta on 11/24/2011 8:52:27 PM , Rating: 2
If T-mobile were to merge and/or be sold to a smaller but profitable regional carrier, the merger might just prove to be the 4th national carrier to compete with the "Big 3", that T-mobile could be.

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