‘Disconnection’: AT&T Officially Gives Up on $39 Billion Bid for T-Mobile USA

AT&T announced today it was abandoning its plan to acquire T-Mobile.

AT&T Inc. is hanging up on its $39 billion bid to buy smaller wireless provider T-Mobile USA, nearly four months after the U.S. government raised concerns that the deal would raise prices, reduce innovation and give customers fewer choices. Photo: Todd Kravos/Flickr

AT&T has dropped its controversial $39 billion bid for Deutsche Telekom’s U.S. wireless unit, bowing to fierce regulatory opposition and leaving both companies scrambling for alternatives.

The long-expected announcement left AT&T grumbling about a shortage of airwaves to meet growing demand, while scrappy competitor T-Mobile remains up for sale by German parent Deutsche Telekom.

In a statement, AT&T said it had agreed with Deutsche Telekom, T-Mobile’s owner to end its bid to buy the company for $39 billion.

AT&T said it had thoroughly reviewed all its options — which amounted to pressing ahead with its proposal against antagonistic government regulators and a wary public, trying to breathe life into stalled talks with third parties to revamp the deal, or killing it entirely — and decided simply to trash the original plan.

AT&T’s purchase of fourth-ranked T-Mobile, announced in March, would have made it the largest cellphone company in the U.S.

AT&T is now the second-largest wireless carrier, with more than 100 million subscribers, behind Verizon Wireless, with 108 million. Sprint has 53 million, followed by T-Mobile at 34 million.

AT&T says the termination of the deal would harm consumers since the merger would have been an “interim solution” to the shortage of wireless spectrum.

Spectrum is the lifeblood of the wireless industry, and all carriers want to acquire more or have the government open additional parts of the public airwaves for auction.

“To meet the needs of our customers, we will continue to invest,” Randall Stephenson, AT&T chairman and CEO, said in the statement.

“However, adding capacity to meet these needs will require policymakers to do two things. First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the U.S. wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC. Second, policymakers should enact legislation to meet our nation’s longer-term spectrum needs,” he said.

As for Deutsche Telekom CEO Rene Obermann, the break-up package will not be enough to soften the blow of losing a deal that has been described as “almost a dream come true” for the German telephone company. Now Obermann will have to either invest billions more in the U.S. market or find a new way to exit the country.

“There are very few occasions when you are forced to walk away from the table with $4 billion in your pocket and still feel like you’ve just been short-changed,” said Thomas Wehmeier of research firm Informa Telecoms & Media.

Reacting to AT&T’s official scuttling of the deal, FCC Chairman Julius Genachowski issued the following statement:

“The FCC is committed to ensuring a competitive mobile marketplace that drives innovation and investment, creates jobs and benefits consumers. This deal would have done the opposite. The U.S. mobile industry leads the world in mobile innovation, and we agree with AT&T that Congress should pass incentive auction legislation that will unleash new spectrum for mobile broadband.”

AT&T will now have to pay Deutsche Telekom $3 billion in cash as a breakup fee and give it about $1 billion worth of airwaves, known as spectrum, that AT&T doesn’t need for the continued rollout of its high-speed “4G” network.

AT&T said it will continue to invest, and it called on the government to quickly approve its purchase of unused spectrum from Qualcomm Inc. and come up with legislation to meet the nation’s long-term needs.

Deutsche Telekom said the deal would not change its group forecast for 2011 expected earnings before interest, taxes, depreciation and amortisation (EBITDA) of around 19.1 billion euros ($24.9 billion).

“It’s a bigger blow to Deutsche Telekom in that they were getting a good price for that mobile asset and I don’t think there’s an alternative that’s nearly as good for them,” Pacific Crest’s Clement said.

Deutsche Telekom had planned to use the proceeds from the sale to pay debt, launch a 5 billion euro ($6.51 billion) share buyback and step up investments at home and in the rest of Europe.

Deutsche Bank, Credit Suisse, Morgan Stanley and Citigroup, which advised T-Mobile, and AT&T’s banks, which included Greenhill, Evercore and JPMorgan, stand to lose a total of $150 million in fees, according to earlier estimates from ThomsonReuters/Freeman Consulting. [via Mashable, Reuters and Huffington Post]

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