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Posted at 08:14 AM ET, 11/28/2011

What’s next for AT&T and T-Mobile merger?

(Seth Perlman/Roberto Pfeil - AP)
What’s next for AT&T and T-Mobile? Not a merger in the near future.

The wireless giants say they are fighting to salvage their $39 billion deal. But some analysts say the firms look unlikely to win their mounting regulatory battles against the Justice Department and now the Federal Communications Commission.

By withdrawing their merger application at the FCC, the companies hoped to focus on their legal defense against Justice’s suit to block the deal. As reported, last week the chairman of the FCC signaled he opposed the deal and would send the proposal to an administrative judge.

“We believe the DOJ will likely win in court, and the FCC arguments provide it with further ammo,” said Christopher King, a principal at Stifel Nicolaus. “We also believe the initial FCC resistance provides DOJ with added leverage to keep fighting if it loses the first round of litigation, or to negotiate a settlement, if necessary.”

Recognizing the challenges ahead, AT&T said it would take a $4 billion charge in the fourth quarter of this year, signaling it would breach its promise to close the deal by September 2012.

AT&T has said it will reapply for the merger at the FCC. And Bloomberg reported last week that AT&T is preparing a settlement offer to divest 40 percent of T-Mobile’s assets.

But don’t expect a wireless mega-merger next year or in the foreseeable future, analysts say.

“The fat lady hasn’t sung yet,” said Craig Moffett, an investment analyst for Sanford C. Bernstein. “But she has taken the stage. And the band has begun to play.”

Few companies understand the regulatory grind involved in getting a merger approved like AT&T. The firm is looking for a long-term victory with its bid for T-Mobile, experts say.

Some public interest groups and analysts say that by withdrawing their application, the companies keep confidential FCC documents out of the hands of DOJ attorneys working to block the deal.

But AT&T has denied the speculation and said that if the FCC rejects its request to scrap its merger application, it would sue the agency.

“We have every right to withdraw our merger from the FCC, and the FCC has no right to stop us,” AT&T general counsel Wayne Watts said last Friday in a statement.

And what of T-Mobile, the nation's fourth-largest carrier, as it sees its suitor dig in its heels deeper to win the merger? Parent company Deutsche Telekom has indicated it wants to find a buyer for T-Mobile to exit its U.S. operations.

Expect cable and satellite Internet service providers to eye T-Mobile as a way to enter the lucrative wireless business their customers seek.

“In the short term, we expect T-Mobile to be a disruptive pre-paid operator. Longer term, we speculated that a deal with the cable operators is T-Mobile’s best available option,” Moffett said.

By  |  08:14 AM ET, 11/28/2011

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