What’s Next For The AT&T/T-Mobile Merger?

A bit lost in the Thanksgving weekend shuffle was one of the most important business stories of the day, AT&T’s seeming retreat from its plans to acquire T-Mobile from Deutsche Telekom. Fortunately for the Moneybox audience, my family includes both a former DOJ Antitrust Division economist and a former FCC attorney so it was far from lost at our repast. The basic story is this. Faced with the news that the FCC had objections over and above the DOJ’s prior stated opposition to the deal, AT&T both withdrew its application for FCC permission to combine mobile operations and announced that it was setting aside the money necessary to pay the kill fee it will owe Telekom if the deal ends up dying. AT&T’s stated plan, at this point, is to try to prevail against the Justice Department in an antitrust trial, and then if they win the re-apply to the FCC. That’ll be a tough route. The FCC process is both slower than an antitrust trial, and also involves a different – and less favorable to the merger – evidentiary standard than the one involve in the antitrust action. One possibility, however, is that if AT&T wins the trial they’ll wait and see who wins the 2012 presidential election and try to see if Mitt Romney or Newt Gingrich appoints more merger-friendly FCC commissioners. But the most likely scenario at this point is simply that the deal is dead. In that case, what can we expect?

The available options are pretty sharply constrained. Telekom is a major company, and has basically decided that they neither want to be in the business of operating T-Mobile as a second-rate discount mobile phone operator nor do they want to invest the resources that would be necessary to turn it into a first-tier mobile phone operator. The DOJ doesn’t want the competition that T-Mobile offers to AT&T and Verizon to vanish from the market, but they can’t exactly force Telekom to keep running a company they don’t want. All the reasons to block a merger with AT&T apply equally to Verizon. That leaves the possibility of selling T-Mobile to Sprint, but T-Mobile uses GSM (like AT&T) and Sprint uses the incompatible CBMA standard (like Verizon) so that’s not a great business proposition. Another possibility is that perhaps AT&T could persuade regulators that it should be allowed to buy the T-Mobile wireless sprectrum from Telekom while selling off its other assets at bargain basement prices to Sprint and Metro PCS. It’s not clear, however, that this actually does anything to meet regulators’ objections.

Ultimately what we may have here is simply the opportunity for a firm that’s not currently a major player in the US mobile phone network to buy the company. Deutsche Telekom has decided it doesn’t want to invest more money in T-Mobile, but some other foreign wireless operator might be up for it. Carlos Slim’s América Móbil has already dipped its toes in the U.S. market with its TracFone subsidiary and might conceivably be interested in T-Mobile for a low enough price. One institution certain to be unhappy with almost any viable alternative to the merger with AT&T is the Communications Workers of America who would very much like to add T-Mobile’s staff to AT&T’s heavily unionized bargaining unit.