AT&T, T-Mobile USA break-up is $6 billion: sources

NEW YORK Thu May 12, 2011 8:52pm EDT

A view shows the AT&T store sign in Broomfield, Colorado April 20, 2011. REUTERS/Rick Wilking

A view shows the AT&T store sign in Broomfield, Colorado April 20, 2011.

Credit: Reuters/Rick Wilking

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NEW YORK (Reuters) - AT&T Inc (T.N) has promised to give Deutsche Telekom (DTEGn.DE) a break-up fee worth $6 billion if U.S. regulators reject its proposed takeover of T-Mobile USA, sources familiar with the matter said.

The $6 billion package is double the value that was publicly disclosed and a record for a merger break-up fee.

The agreement includes about $2 billion worth of spectrum and a roaming agreement valued at roughly $1 billion, according to two sources who asked not to be named as those details were not public.

AT&T and T-Mobile USA declined comment on Thursday.

AT&T disclosed its $3 billion cash break-up fee in March, when it struck its $39 billion deal to buy Deutsche Telekom's T-Mobile USA unit, but it has declined to put a value on the spectrum it would give up or the roaming pact.

While the cash agreement is already unusually high at 7.7 percent of the total deal price, the addition of assets and services of a similar value would mean that the companies are breaking global records with a 15.4 percent break-up fee, according to Thomson Reuters data.

The deal has been heavily criticized by many consumers and AT&T rivals including No. 3 U.S. mobile service Sprint Nextel (S.N).

The acquisition of T-Mobile USA, ranked No. 4, would allow AT&T, currently the No. 2 U.S. mobile service, to leapfrog the leader of the U.S. market, Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).

The deal needs approval from the U.S. telecommunications regulator, the Federal Communications Commission, and the Department of Justice, which examines antitrust issues around mergers.

AT&T's chief executive, Randall Stephenson, defended the deal at a hearing held by skeptical lawmakers on Capitol Hill on Wednesday.

Based on valuations in past spectrum sales, $2 billion would pay for roughly 10 megahertz of spectrum, according to Fabricio Martinez, a UK-based consultant from Aircom International.

This is the minimum necessarily to offer high-speed wireless services based on the emerging technology Long Term Evolution (LTE), according to analyst estimates.

Martinez estimated that 10 megahertz would double T-Mobile USA's current available spectrum for high-speed services.

But he noted that "ideally a carrier would want 20 megahertz," for LTE services to perform well.

T-Mobile USA would be able to increase its current data speeds by only one and a half times using 10 megahertz for LTE, according to Martinez, who said that if it had 20 megahertz it could increase data speeds by four times.

AT&T shares closed up 26 cents, or almost 1 percent, at $31.64 in afternoon trade on the New York Stock Exchange.

(Additional reporting by Paritosh Bansal; Editing by Steve Orlofsky and Carol Bishopric)

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