AT&T Attempts to Salvage Floundering T-Mobile Deal

AT&T could be prepared to divest as much as 40 percent of T-Mobile’s assets in order to appease the Justice Department, which in August sued to block the merger on anti-competitive grounds, Bloomberg reported, citing an anonymous source familiar with the plan.

AT&T’s rumored proposal comes on the heels of a damaging blow from Federal Communications Commission Chairman Julius Grenachowski, who last week indicated his opposition to the proposed merger when he referred the matter to an administrative law judge for review; that’s standard procedure when the FCC opposes a merger.

In a Thanksgiving Day move, AT&T and Deutsche Telekom said they would temporarily withdraw their applications from the FCC, and would first focus on winning approval from the U.S. Department of Justice, which sued to block the merger in August. In a statement posted on AT&T’s website, the companies said they would continue to pursue the antitrust clearance from the DOJ, either through litigation or “alternate means,” and would seek the necessary FCC approval “as soon as practical.”

AT&T also announced it was preparing for the worst: the cellular giant announced it would be taking a pre-tax accounting charge of $4 billion to offset the breakup fees that it will owe T-Mobile’s parent company, Deutsche Telekom, should the deal collapse. If the merger is falls through for regulatory reasons, AT&T has agreed to pay a cash breakup fee of $3 billion, plus added roaming and spectrum rights, for an estimated total of $6 billion.

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The sale of T-Mobile’s assets would likely include some combination of customers and spectrum, however AT&T will need to hang on to a higher percentage of spectrum to support its own customers’ heavy data usage. Earlier in September, AT&T had reached out to Metro PCS and LEAP Communications as potential buyers for T-Mobile assets.

AT&T’s official proposal could come as early as November 30th, the next scheduled hearing before the Justice Department. The trial has been set for February 13th.

The Justice Department first sued to block the merger in August with a civil antitrust suit, claiming that a combined AT&T and T-Mobile would reduce innovation and competition in the mobile marketplace, and lead to higher prices for consumers.

And despite AT&T claims that benefits of the merger include increased infrastructure investments and job growth, there has been mounting opposition to deal. Competitor and third largest mobile provider Sprint also filing suit against the merger. Cellular South (now C-Spire) also joined the chorus with a suit of its own, as did seven state attorneys general .