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AT & T Options Meager in Wake of DOJ Suit

Wed, 08/31/2011 - 1:30pm
Maisie Ramsay

The Department of Justice’s antitrust lawsuit seeking to block AT&T’s merger with T-Mobile USA leaves the operator with little ammunition to get the deal passed.

At this point, AT&T can either file an appeal or restructure the acquisition. But both are time consuming, and neither have any guarantee of success.

“Without getting into the merits of the case, from a practical perspective it would be extraordinarily difficult to continue moving forward with the merger at this point,” says Maury Mechanick, a telecommunications attorney at White and Case, LLP.

The operator has a lot on the line. If the deal falls through, it will have to shell out $3 billion to Deutsche Telekom, as well as provide AWS spectrum and low-cost roaming to T-Mobile. It will also lose a chance to secure the spectrum it needs to address an ongoing capacity crunch.

But appealing the case could result in a lengthy legal battle that could drag on for years, rendering moot many of the deal’s near-term benefits. The DOJ’s suit indicated it is ready to play hardball, and it is unclear whether any settlement could be reached on the mammoth takeover.

The DOJ is dead-set against the deal, calling it anticompetitive and bad for American consumers. At a press conference Wednesday, the agency’s acting antirust chief Sharis Pozen said: “Any way you look at this transaction, it's anticompetitive.”

This is not the first time the DOJ has moved to block mergers in the telecom industry. The agency successfully blocked Sprint’s merger with MCI WorldCom and filed an antitrust suit in 2002 that quashed a proposed merger between DirecTV and DISH Network.

The DOJ complaint isn’t the final nail in the coffin for the deal, but it could be.

AT&T has indicated it won’t roll over and play dead. The company has vowed to fight the case and maintains its stance that “the facts will prevail in court.”

If AT&T makes good on its promise to fight the case, it could be months before a trial began and the appeals process could stretch on for years. Meanwhile, the transaction with T-Mobile would be left in limbo.

Telecommunications analyst Jeff Kagan isn’t ready to call the deal dead – yet. AT&T must radically restructure the deal if it expects to have any hope of getting the transaction passed, Kagan says.

“Either they’re going to walk away from this deal or they’re going to have to restructure it,” Kagan says, giving little weight to the chances AT&T could successfully fight the DOJ’s suit in court. “And I don’t think they’re going to walk away because they have to pay way too much to T-Mobile for a breakup fee.”

For instance, AT&T may try to convince regulators to let it keep T-Mobile’s spectrum and sell off the rest of the company’s assets to other wireless providers. Such a proposal could be complicated if it requires renegotiating the original merger agreement with Deutsche Telekom.

The court case is also likely to stall any decisions from the FCC. The agency could delay a ruling on the merger until the DOJ case gets worked out in courts, putting another roadblock in place for the completion of the deal.

It’s too early to shut the book on AT&T’s merger with T-Mobile. But one thing is certain: Its chances of successfully closing the deal just got a whole lot slimmer.

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