AT&T and T-Mobile on Thursday moved closer to abandoning their proposed $39 billion merger, saying they have withdrawn their application from the Federal Communications Commission.
The decision followed an announcement this week by FCC Chairman Julius Genachowski that he was moving to block the deal, setting up a major regulatory hurdle that all but ended the chances for a wireless mega-merger in the near term.
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AT&T and T-Mobile said in statements Thursday that they will continue to fight for merger approval in other ways but are prepared for failure. With opposition from the FCC and a lawsuit filed by the Justice Department against the deal in August, AT&T said it is preparing for penalty fees it would owe to Deutsche Telekom, the parent of T-Mobile, for failing to complete the deal by September 2012.
AT&T said in a blog post that it expects to take a $4 billion charge in the fourth quarter of this year because of break-up fees owed to Deutsche Telekom. The penalty includes $3 billion in cash and $1 billion in assets for the German firm.
Analysts said the deal could be salvaged if the companies agreed to greater conditions in a settlement with the Justice Department. AT&T said it needed to withdraw its merger application at the FCC to “facilitate the consideration of all options at the FCC and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice.”
“As soon as practical, AT&T Inc. and Deutsche Telekom AG intend to seek the necessary FCC approval,” AT&T said.
But obstacles are stacked against the firms. Genachowski said Tuesday that after an eight-month review, he found that combining AT&T and T-Mobile into the nation’s biggest wireless provider would harm the public by leading to job losses, as well as higher prices for cellphone users. He recommended sending the application to an administrative law judge for review, a step the agency takes when opposing a communications industry merger.
Harold Feld, legal director of the public interest group Public Knowledge, which opposes the merger, speculated that the companies might have withdrawn the FCC application to avoid having to disclose documents that the Justice Department could then use in its lawsuit.
Telecom law experts said AT&T could try again to acquire T-Mobile in the years ahead. The company sees its future in wireless services and wants to bulk up its national network. Deutsche Telekom has said it no longer wants to operate its U.S. business and has long sought a buyer for the nation’s fourth-largest wireless carrier.
“It is just the end of the first inning. There is still a long game ahead,” said Jeffrey Kagan, an independent telecom and tech analyst.