AT&T's dead T-Mobile takeover: from beginning to end

The FCC has finally approved the spectrum transfer that was part of a $4 billion breakup fee that AT&T promised to T-Mobile if the companies failed to merge. Following AT&T's decision to call off the acquisition in December of last year, the two companies applied in Janurary to the FCC to get the green light for the spectrum transfer. The spectrum, which is estimated to be worth $1 billion, is in the AWS band and it covers 128 cellular market areas. Be sure to check this map to see where AT&T is losing some of its spectrum. While T-Mobile currently relies upon its AWS spectrum for its 3G network, it plans to use the additional capacity gained by the breakup fee to help it play catch-up and launch its own LTE network in 2013.

T-Mobile is apparently looking to do whatever it can in order to raise enough money to continue on as an independent entity. In addition to massive job cuts, Bloomberg reports that the company intends to sell a large number of cell towers, as many as $3 billion worth, as quickly as possible. The move will bring in more cash on top of the $4 billion in cash and spectrum it received in the wake of AT&T's failed takeover. T-Mobile told All Things D that it was evaluating a "tower sale as part of its self-funding strategy," but didn't confirm any details.

The overall strategy is apparently to make T-Mobile "self-funded," which is to say able to stand on its own two feet independent of parent company Deutsche Telekom. The strategy of selling towers, however, is a sign that the company may be in more dire straits than it appears. Sprint sold almost all of its own towers to TowerCo in 2008 for $680 million, which gave it an infusion of cash but didn't achieve the stated goal of focusing on its " core business of providing communication services to consumers." T-Mobile faces as many problems as Sprint does (though they're different problems) when it comes to building out a 4G LTE network. While the tower sale would likely help with short-terms issues, it's a sign that its long-term prospects are far from resolved.

AT&T has shown an enormous amount of swagger throughout the entire story arc of its merger attempt with T-Mobile USA, much of which has come directly from the mouth and pen of Jim Cicconi, AT&T's EVP of external and legislative affairs (pictured above, far right); it got to the point during the merger proceedings, in fact, that the FCC said it was "deeply concerned."

But today's comments by Cicconi on AT&T's Public Policy Blog regarding T-Mobile's announced layoffs border on the bizarre, saying that "normally, we'd not comment on something like this" but that "AT&T promised to preserve these very same call centers and jobs if our merger was approved." The entire piece sounds like he's quite literally lecturing the FCC's commissioners, reminding them that "decisions have consequences" and that T-Mobile's layoffs didn't have to happen if only they had elected to allow the merger to proceed.

It's long been known that T-Mobile is starved the amount of spectrum required for a proper nationwide LTE deployment, though, and the carrier reiterates that here: not only is this plan contingent on regulatory approval of the spectrum it won from AT&T after the takeover failed, but it says that it still needs "additional AWS spectrum for broader / deeper LTE build-out," and it's unclear whether the company has spectrum purchases budgeted into the $4 billion figure. In the meantime, it'll be relying largely on refarming of existing 3G bands to kick off service.

AT&T just released its Q4 2011 financial results, and the failed T-Mobile buyout combined with other charges means the carrier lost some $6.7b for the quarter — the carrier had to pay T-Mobile that $4b breakup fee, plus hand over $1b in spectrum after the FCC and DOJ combined to kill the proposed merger. AT&T also had to account for modified pension accounting, which made up the rest of the loss.

Ignoring that mess, things are going pretty well: AT&T added 717,000 subscribers and sold a record 9.4m total smartphones, of which 7.6m were iPhones — and the majority of those were iPhone 4S units. That's 20 percent of all the iPhones Apple sold during its own record-setting holiday quarter, and some 3m more iPhones sold than Verizon — AT&T sold just about 6.7m more total iPhones than Verizon for the year. As for the remainder, AT&T also says Android sales were also up double from last year, but didn't mention BlackBerry or Windows Phone numbers at all. All told, AT&T activated 1.7m more smartphones than Verizon last quarter, and beat its own previous quarterly record of 6.1m phones by 50 percent. The company also says it was the best quarter ever for other data devices like tablets, WWAN cards, tethering plans, and hotspots with 571,000 sold.

While we all wait for the FCC to approve the spectrum transfer that's a result of AT&T's failed bid to purchase T-Mobile, GigaOM has posted a map created by reader Andrew Shepherd of exactly where that spectrum will be. AT&T dropped large blocks in California, Arizona, and the Seattle area, Shepherd found, but also understandably made sure to keep enough spectrum in key areas to ensure its LTE network wouldn't be significantly hurt. If you're a T-Mobile customer in one of the highlighted areas, you should hopefully see improved service in the not-too-distant future. It all adds up to $1 billion worth of spectrum, which is in addition to $3 billion in cash and a seven-year roaming agreement.

According to The Wall Street Journal, AT&T and T-Mobile have entered an application to the FCC to approve the transfer of $1 billion worth of AWS spectrum to the number-four US wireless carrier. The transfer should tie up the remaining loose ends following AT&T's bid to purchase T-Mobile, which was called off in mid-December. In addition to the spectrum, AT&T agreed to give up $3 billion in cash and a seven-year 3G roaming agreement as part of the break-up fee. While we're sure T-Mobile is happy with the extra $4 billion, the company has said that "there's no Plan B. We're back at the starting point."

Though it's got to be pleased about the $4 billion parting gift it's getting — $3 billion in cash and another roughly $1 billion in AWS spectrum — Deutsche Telekom appears to have been caught a bit flat-footed in the wake of AT&T's failed bid to acquire T-Mobile USA. Speaking to reporters today, DT chief René Obermann notes that "we have a better chance of expanding the network in many markets" thanks to the some 128 markets of AWS licenses that T-Mobile is receiving (plus a seven-year 3G roaming deal on AT&T's network), but that it's not sufficient to move to LTE — and it doesn't have a plan in place to make LTE happen in the absence of additional spectrum acquisition or a new partnership. "Our first task is to operate the business the best we can with this new situation, and that's what we're going to do."

The starkest comments came from a member of Deutsche Telekom's corporate communications team, Andreas Fuchs: "There's no Plan B. We're back at the starting point." If nothing else, AT&T's license transfer and roaming deal should buy T-Mobile's American business some time — but in the long term, it wouldn't be surprising at all to see some other suitors come forward. Olbermann's intentions had been to refocus his company on its core European businesses, and there's no outward indication that AT&T's failure changes those plans.

Deutsche Telekom now is detailing the consolation prize it's getting from AT&T in the aftermath of its failed acquisition of T-Mobile — and in looking through the details, calling it a "consolation prize" really doesn't do it justice. The German telecommunications giant will be receiving a cash payment of $3 billion, which we now know will be going directly toward paying off DT's debt — it seems that T-Mobile USA itself won't see a dime of it — but the carrier will be taking delivery of licenses for some 128 market areas of AWS spectrum, including 12 of the top 20 markets. That's a pretty big deal, and will probably force AT&T to rely more heavily on its 700MHz holdings for LTE deployments in some areas.

Though there's no sign that DT now suddenly wants to keep T-Mobile USA in its holdings over the long term, it seems like this is a totally acceptable outcome for the carrier. Realistically, it might be exactly what it needed to get it over the hump, put it on the path to growing its subscriber base again, and into an LTE agreement of some sort. We'll see.

AT&T has officially announced this afternoon that it has dropped its plans to merge with competitor T-Mobile. The news comes on the heels of rumors earlier today that the deal had all but fallen apart. The company will now pay a total of $4 billion to Deutsche Telekom as a breakup fee — $3 billion in cash plus about a billion in spectrum — and the two carriers will agree to a roaming deal which will allow devices for each network to work on the other (we've already heard some evidence of interoperability on the 1900MHz band). As expected, AT&T is citing recent FCC and DOJ resistance which called the proposed $39b takeover of T-Mobile into question as the main motivator for the decision. 

AT&T is taking a pretty aggressive tone in its announcement, echoing earlier concerns about meeting future needs for spectrum — not a surprise, considering that's been its claimed motivation all along:

One of AT&T's more reasonable ideas for convincing US regulators that its takeover of T-Mobile would be good for competition was for the company to sell off some of its assets as a precondition to closing its merger deal. Alas, as the Wall Street Journal reports this morning, talks between AT&T and potential suitors for those assets appear to have cooled off, with AT&T apparently preferring to look at other options — such as a partial takeover of T-Mo or a joint venture with the Deutsche Telekom-owned carrier. The Journal's sources warn that the asset divestiture deal (or deals) could still go ahead, as nothing is being ruled out at this stage, but AT&T's initially bullish expectation that somehow its $39 billion acquisition would go through is looking increasingly under threat. After being repeatedly rebuffed by the FCC, the company may now finally be considering taking the $4 billion hit that its contract with Deutsche Telekom entails upon non-completion of the takeover and considering its next best option.

AT&T and Deutsche Telekom have just asked the judge overseeing proceedings in their T-Mobile acquisition case with the Department of Justice that they would like to hold off on any further action until January 18th "to allow the two companies time to evaluate all options." The DOJ joined in the filing, so it would seem that everyone is in agreement here — pending some unusual action on the part of the judge, the request is likely to be granted, particularly considering her previous indication that she might not be willing to grant an expedited process the next time AT&T files a merger proposal.

It's hard to say exactly which "options" AT&T and DT are considering at this point, but they do say that they're "actively considering whether and how to revise [their] current transaction to achieve the necessary regulatory approvals." In anything resembling its originally-proposed form, it would seem that both the DOJ and FCC would wage war to prevent the deal from going through. A joint venture and heavy divestitures have both been rumored as possible Plan Bs — but it's also possible that AT&T could simply walk away from the deal, leaving $3 billion in cash and another billion worth of spectrum to T-Mobile in the process.

Since AT&T has formally withdrawn its application, it was an open question whether the Department of Justice would press on with its lawsuit to block the company's proposed purchase of T-Mobile from Deutsche Telekom — a lawsuit with an "expedited" trial scheduled to begin on February 13th of next year. A DOJ lawyer just answered that question today, telling a federal judge that it will ask that the case either be stayed or withdrawn entirely until AT&T re-files a new application with the FCC. Publicly, AT&T has remained firm that it intends to continue pursuing a deal, hinting that it's willing to negotiate with the feds — presumably meaning a divestiture deal — but for the moment, there's no new proposal on the table.

Perhaps more alarmingly for AT&T, the judge overseeing the proceedings indicated today that she may not be willing to expedite this case going forward, saying "the landscape has changed" and apparently expressing some level of frustration that AT&T had withdrawn its original proposal. For its part, AT&T insisted that it wasn't "playing some strategic game," but let's be honest: everything that happens in the Beltway is a strategic game on some level.

Seemingly undeterred by the Department of Justice's pending lawsuit and the FCC's scathing report, AT&T sounded defiant at a UBS conference today with CFO John Stephens insisting that the company is still preparing to take T-Mobile USA off Deutsche Telekom's hands. And those aren't just empty words, either — Stephens points out that it has $10 billion in cash set aside right now with another $28 billion in financing and reserves waiting on standby so it can "close the deal very quickly."

Next up for AT&T is a preliminary hearing with the DOJ this Friday, though Stephens says that any discussions with the feds that come out of the hearing won't be made public. Unless AT&T submits a revised merger application first, everything is currently focused on next February's court trial to settle the DOJ matter. Rumors have been circulating that the two companies might look at an Everything Everywhere-style joint venture in the event a merger has no shot of approval, but Reuters is citing its own sources today as saying that "there was no Plan B" — AT&T still wants to push the merger through, which by all appearances is going to require divestitures or other major concessions at this point.

The war of words in the wake of AT&T's withdrawn application to buy T-Mobile USA continues to escalate this afternoon. As a government agency, we'd figured the FCC might take the high road by not responding to AT&T's rebuttal this morning — but it wasn't to be. The Commission's chief of the Consumer and Governmental Affairs Bureau, Joel Gurin, relayed a message via the FCC's official Twitter account:

As a refresher, Jim Cicconi is AT&T's senior executive VP of external and legislative affairs, the man who penned fiercely-worded statements bashing the FCC's staff report both today and yesterday. There are numerous portions of AT&T's most recent rebuttal that Gurin could take issue with, but this snippet from Cicconi's conclusion could've been the tipping point:

Released earlier this week, the FCC's report on AT&T's scuttled application to pick up T-Mobile USA for $39 billion called out the carrier at almost every opportunity. AT&T had already made it crystal clear that it didn't appreciate the report being released — it had attempted to withdraw its application last week, perhaps partly in an effort to stave off the release — but now it's going into more detail in a lengthy, angrily-worded rebuttal of some of the FCC's claims, bordering on outright sarcasm in places. Here's what we've got:

AT&T concludes by saying that it is "still ready" to make the merger happen, but this language in particular caught our eye:

Looking at the rumor mill the past few days, it seems that AT&T is weighing pretty much all of its options in light of its paused attempt to buy T-Mobile USA off of current parent Deutsche Telekom. The latest possibility comes from WSJ, which is reporting that AT&T and DT have discussed a joint venture should an acquisition bid ultimately fail — a partnership that would see the two companies pool their infrastructure together. Details are scarce at this point, but it seems likely that the end result would look a little bit like Everything Everywhere in the UK, where T-Mobile has hooked up with Orange to share resources.

More on this one as it develops.

AT&T's senior executive VP of external and legislative affairs, Jim Cicconi, released a brief statement in response to the FCC's damning report yesterday:

Clearly, the company is upset that the report was released in the first place considering that AT&T's application has been withdrawn — and it's also upset that it didn't have an opportunity to check out the findings beforehand so it could "address or rebut its claims." In all likelihood, we haven't heard the last from either side.

Although AT&T has withdrawn its application to buy T-Mobile USA for $39 billion while it regroups and evaluates its options, the FCC isn't letting it go without a spanking: the Commission and its staff have released a 109-page report this week laying out findings based on the merger documentation that had been filed back in April. Not interested in poring through some of the driest literature on the planet? We can't say we blame you — so we've boiled down the key facts, figures, and quotes. Here are the highlights.

Although the FCC and the Department of Justice have been conducting their own independent investigations into the proposed merger, it's no secret that Chairman Genachowski of the FCC and his commissioners have been paying close attention to the DOJ's lawsuit and the claims it lays out:

After some back-and-forth in the prior days about whether the FCC would let the AT&T quietly undo its massive, $39 billion proposal to buy T-Mobile USA from Deutsche Telekom, WSJ is reporting this afternoon that the FCC's commissioners are indeed signaling that they'll let the matter go. Why is that significant? For one thing, it clears out the looming hearing that could further hurt AT&T's chances of putting a deal together, and — as AT&T has stated — it helps them concentrate on dealing with the upcoming Department of Justice proceedings related to the matter. The carrier has signaled that it could still look at other options for getting a deal done, and the latest rumor has it discussing a big divestiture to Leap Wireless. Needless to say, this isn't over.

The AT&T / T-Mobile merger story is starting to veer into faintly ridiculous territory: first Bloomberg reported that AT&T was considering selling off up to 40 percent of T-Mo in order to appease the regulators at the DOJ and FCC who oppose the deal, and now the New York Times says the most likely suitor is Leap Wireless. That's tiny, tiny Leap Wireless, which has about seven million no-contract customers on its Cricket and Jump Mobile brands — that's compared to something like 33 million for T-Mobile and slightly north of 100 million for AT&T. The NYT says that AT&T will sell a mix of T-Mobile customers and spectrum to Leap, but doesn't specify the split — we'd guess it's tilted towards customers, since AT&T has been painting the merger as a spectrum acquisition story.

Now, we're not sure why AT&T would bank its $39 billion merger proposal on a company that does just over $700 million in quarterly revenue, but given the widespread opposition to the deal in the industry we'd say AT&T is probably taking what it can get — it's not like Sprint was going to step in to help make this deal happen. We'll see if this move satisfies the DOJ and FCC; we've got a feeling the crazy train is just starting to roll.

In the wake of AT&T's oddly-timed FCC withdrawal yesterday of its proposed $39 billion purchase of T-Mobile from Deutsche Telekom, a Bloomberg report this afternoon claims that there's already a Plan B in the works: heavy divestiture. Bloomberg's source says that AT&T may resubmit its proposal with plans to sell off as much as 40 percent of T-Mobile USA's assets — a figure that would probably include a combination of spectrum, infrastructure, and subscribers — though there's no information as to when the resubmission may happen, and apparently, AT&T's decision hasn't yet been finalized.

You might recall that Verizon was required to divest some of Alltel's markets when that acquisition went through a couple years ago (coincidentally, AT&T picked up some of those markets), so it's certainly not without precedent for a deal of this magnitude to require some spinoffs. The real question, though, is how any such divestiture would address the FCC's (and the public's) concerns over reduction in competition: 40 percent of T-Mobile certainly wouldn't be able to compete on a national level, and neither the spectrum nor technology are a good fit for any other player that could go toe-to-toe with AT&T and Verizon.

The FCC's decision to request a formal administrative hearing into AT&T's proposed takeover of T-Mobile USA has caused the US carrier to take drastic action: AT&T and Deutsche Telekom have just announced that they're withdrawing their pending approval applications with the FCC. This is not to say that the companies are quitting on the deal, they specifically assert that they're "continuing to pursue the sale" of DT's US wireless assets, however AT&T's other move today is almost as significant.

The big blue mobile operator has decided to take a $4 billion pretax charge on its Q4 2011 accountancy sheet, in recognition of the risk of this deal not going through. That includes a $3 billion default payment that is due to Deutsche Telekom in the event of non-completion and an additional $1 billion in book value of spectrum that AT&T would have to give up. So, as far as AT&T's accountants are concerned, the failure of the $39 billion T-Mobile acquisition is now more likely than its success.

The FCC said it had "serious concerns" about the AT&T / T-Mobile merger after the Department of Justice filed an antitrust lawsuit to block the transaction, and now Chairman Julius Genachowski is doing something about them: he's officially voicing his opposition to the deal and requesting a formal administrative hearing after the lawsuit is done. Genachowski told reporters today that letting AT&T buy T-Mobile isn't in the public interest and that thousands of jobs will be lost in the afternath, but that both sides will be allowed to make their case in the "hearing-like" trial that'll be held if the DOJ is unsuccessful in blocking the merger. The request for hearing is still in the draft stages, as it has to be approved by the other Commissioners, but we've got a feeling it'll go through.

Overall, it's a weaker move from a weaker agency, but it's what the FCC can do — and it's yet another major roadblock for AT&T and T-Mobile, who have faced widespread opposition to their merger plans since they were first announced. For its part, AT&T just issued the following statement expressing disappointment and pledging to review all options: