AT&T gives up on T-Mobile merger

December 19, 2011

AT&T on Monday ended its pursuit of T-Mobile, bowing to government opposition to the $39 billion deal that would have created the nation’s biggest mobile provider of phone and Internet service.

The companies agreed to end last-ditch negotiations to restructure their merger and win over leery antitrust officials. As a penalty, AT&T will hand to T-Mobile’s parent, Deutsche Telekom, $4 billion worth of cash and other assets.

With greater threats coming from competitor Verizon, AT&T vowed it would continue a decade-long push to bulk up its business. It continued to disagree with concerns by regulators that the deal would have hurt consumers and led to less competition.

AT&T chief executive Randall Stephenson said regulators should “allow the free markets to work.”

“The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to customer needs and market forces,” he said in a statement.

Nevertheless, the decision puts an end to an audacious nine-month lobbying and legal assault by AT&T, the nation’s second-largest wireless company, to become the wireless industry leader through its purchase of T-Mobile.

By combining the companies’ networks, AT&T had hoped to better feed America’s insatiable appetite for watching streaming movies, sending e-mails and surfing the Web over smartphones and tablets.

It spent tens of millions of dollars on lobbying and national ads touting its merger and its ability to create jobs.

But even from the beginning, antitrust officials at the Federal Communications Commission and Justice Department said the deal would be hard to approve.

“Consumers won today,” said Sharis A. Pozen, the acting head of antitrust at Justice. “We sued to protect consumers who rely on competition in this important industry. With the parties’ abandonment, we achieved that result.”

Regulators had argued that the merger would leave 80 percent of all cellphone contracts in the hands of two firms — AT&T and Verizon. And the government rebutted claims that the deal would create jobs, citing the fact that the merger would be “horizontal,” or across similar lines of business.

“Companies that are planning highly concentrating horizontal mergers will have to think twice, no matter how much political clout they think they can bring to the table,” said Bert Foer, president of the American Antitrust Institute, a think tank on antitrust law.

Consumer groups that had criticized other mergers approved during the Obama administration — such as Comcast’s mega-media venture with NBC Universal and Ticketmaster’s acquisition of Live Nation — praised the unraveling of the deal.

Regulators “stood up to tremendous lobbying pressure as AT&T spent tens of millions of dollars trying to push this merger through,” said Harold Feld, legal director at public-interest group Public Knowledge.

It has been a rare setback for AT&T’s storied lobbying and legal team and leaves the company in a difficult competitive position. Its industry-leading rival, Verizon, stands to get even bigger through a recent $3.6 billion purchase of wireless airwaves from cable firms Comcast, Time Warner and Bright House Networks.

That deal has also raised concerns by public-interest groups and antitrust officials who say a joint-marketing agreement between Verizon and the cable companies may reduce competition.

Deutsche Telekom has signaled its interest in ending operations in the United States and could look for another suitor. But analysts question whether regulators would approve another bid for T-Mobile, given their opposition to the AT&T merger.

“AT&T is in this for the long haul,” said Jeffrey Silva, an analyst with Medley Global Advisors. “Don’t be surprised if you see them going at this or another deal like this down the road.”

Staff writer Jia Lynn Yang contributed to this report.

Cecilia Kang is a national technology reporter, writing about tech and Internet policies at the Federal Communications Commission and Federal Trade Commission and how regulations affect businesses and consumers.
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