Looking back at 2011: AT&T’s bid to acquire T-Mobile is defeated

AT&T made headlines in March of this year when it announced plans to acquire T-Mobile USA from Deutsche Telekom for $39 billion. Here we are nine months later and the deal is dead in the water, but there was a huge game of tug-of-war going on all year between AT&T, policy makers, the government and AT&T’s competitors. There were points when it seemed that the merger was bound for approval, and others where it seemed fairly certain that the government would reject AT&T’s application. The only thing we knew for sure is that this deal, if approved, would change the wireless landscape in the U.S. forever. Read on for more.

AT&T’s announcement to acquire T-Mobile USA was almost immediately met with strong resistance from its competitors, Sprint in particular. While Verizon Wireless supported the deal, Sprint and several regional carriers voiced strong opposition. Sprint CEO Dan Hesse said the merger would “stifle innovation” and would leave Verizon Wireless and AT&T controlling 97% of the U.S. wireless market. AT&T Mobility boss Ralph de la Vega, however, argued that the merger would address spectrum shortage concerns in the United States and would help deliver mobile broadband to more people in areas without wireless service. AT&T CEO Randall Stephenson also said the merger would result in “net job creation.”

Despite the resistance from others, AT&T’s General Counsel Wayne Watts said in June that the merger was on schedule for approval in March of 2012. Less than a month later, however, the tide began to turn against AT&T when Senator Herb Kohl, chairman of the Senate’s antitrust subcommittee said “I have concluded that this acquisition, if permitted to proceed, would likely cause substantial harm to competition and consumers, would be contrary to antitrust law and not in the public interest, and therefore should be blocked by your agencies.” That was just the start of the government’s opposition, and AT&T soon began to face much more serious problems.

In August, the Federal Communications Commission announced that it planned to review AT&T’s panned $1.925 billion acquisition of Qualcomm’s FLO TV lower 700MHz frequency band spectrum at the same time as the company’s planned T-Mobile merger. This no doubt highlighted the government’s concerns that AT&T might control too much wireless spectrum if it was allowed to purchase both T-Mobile USA and Qualcomm’s spectrum.

Things really started to heat up in August.

The Justice Department, which had been reviewing the merger for several months, decided to sue AT&T in an effort to block the acquisition in late August. The U.S. government wasn’t just worried that AT&T’s merger would create a duopoly, however. It also feared that allowing AT&T to purchase T-Mobile could result in job cuts, not job creation. AT&T addressed both concerns by promising to bring back 5,000 call center jobs from overseas, and rumors suggested the carrier was considering to sell off as much as $8 billion in assets to other companies. The FCC, however, said AT&T hadn’t ever proved how it planned to create new jobs, even though unions such as the Communications Workers of America argued the merger could create as many as 96,000 additional jobs in the United States.

It became clear later in the year that the merger was in dire straits when AT&T decided to pull its FCC application to purchase T-Mobile altogether, to instead focus on its lawsuit with the Justice Department. Should the carrier have won the lawsuit with the DoJ, it would have no doubt used the ruling as ammo in its bid to gain the FCC’s approval in a future application. Unfortunately, the merger was already on life support by this point.

The FCC’s concerns were aired out in late November when the agency released preliminary thoughts on the merger to the public, which suggested the merger was not going to go through. AT&T argued that blocking the deal would increase prices across the industry, but it was already too late for arguments. Three days later, AT&T asked the court to delay its suit with the Department of Justice. The DoJ was clearly on the same page; it also asked the court to toss or delay the lawsuit, and said that there was no need for a case since AT&T no longer had an active application filed to purchase T-Mobile USA. A judge quickly approved both requests for a stay, but that delay quickly became irrelevant.

On December 19th, AT&T announced that it was canceling its plans to acquire T-Mobile USA. As a result, it paid Deutsche Telekom $3 billion as part of a promised breakup fee and provided T-Mobile USA with AWS spectrum and a 3G roaming agreement. All was not lost, however. The FCC had promised to review AT&T’s planned purchase of Qualcomm’s spectrum at the same time as the merger, and as a result of AT&T pulling out of the deal, granted AT&T its blessing to purchase the added spectrum.

AT&T’s failed acquisition of T-Mobile USA certainly took up the better part of this year, and it was one of the more compelling stories to follow closely. 2012 will be a year to watch T-Mobile USA, as it struggles to hold on to fleeing contract customers and remain competitive with AT&T, Verizon Wireless and Sprint, all of which have plans for faster nationwide 4G LTE networks.

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