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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 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.


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