AT&T drops $39 billion bid to buy T-Mobile USA

Mon Dec 19, 2011 6:34pm EST

AT & T and T-Mobile logos are seen posted on the wall of a subway station at West 14th street and 8th avenue in New York September 27, 2011.     REUTERS/Shannon Stapleton

AT & T and T-Mobile logos are seen posted on the wall of a subway station at West 14th street and 8th avenue in New York September 27, 2011.

Credit: Reuters/Shannon Stapleton

Related Topics

(Reuters) - AT&T has dropped its controversial $39 billion bid for Deutsche Telekom's wireless U.S. unit, bowing to regulatory opposition over the deal that would have made it the largest cellphone operator in the country.

AT&T had said it urgently needed to buy T-Mobile USA to help overcome a spectrum shortage, while Deutsche Telekom saw it as a way to exit the U.S. market to focus on its European operations. Once a cash cow, T-Mobile USA has been loosing customers.

An agreed $3 billion break up fee to be paid by AT&T, roaming agreements with AT&T and additional mobile licenses for T-Mobile USA will soften the blow but puts Deutsche Telekom back at square one.

"It was definitely a miscalculation (by AT&T)," said Steve Clement, an analyst at Pacific Crest Securities.

"I don't know that it's such a big deal to the extent that you're going to have people looking for a change of management (at AT&T). But they definitely miscalculated what they would be able to push through to regulators'" he said.

AT&T will have to look elsewhere for the wireless airwaves it has said it needs to support the high demand for mobile data services and to compete with larger rival Verizon Wireless, which has agreed to buy spectrum from cable operators.

AT&T's plan to buy T-Mobile USA, first announced in March, met with fierce opposition from the U.S. Department of Justice and the Federal Communications Commission and industry skepticism from the start.

Late in November, AT&T and Deutsche Telekom withdrew their application for FCC approval to focus on addressing Justice Department concerns.

At the time AT&T said it would take a $4 billion charge in case the deal collapsed, including a $1 billion book value for the spectrum AT&T would have to give to T-Mobile USA.

Deutsche Telekom said on Monday it would return to reporting T-Mobile USA as part of its continuing operations and that its group forecast for 2011 of expected earnings before interest, tax, depreciation and amortization (EBITDA) of around 19.1 billion euros ($24.86 billion) would be unchanged.

"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," Clement said.

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

($1 = 0.7682 euros)

(Additional reporting by Alexei Oreskovic in San Francisco, Sinead Carew in New York; Editing by Phil Berlowitz)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (7)
USAPragmatist wrote:
Good news for consumers!

дек 19, 2011 4:53pm EST  --  Report as abuse
C33704 wrote:
THANK GOD; I left ATT for T-Mobile 11 years ago; after visiting Germany I came home to tell people about SIM Cards and all the features they had in a company Called Deustche Telekom; ATT told me that AMerica would never go to DIGITAL or SIM CARDS; as soon as I found T-Mobile I jumped ship faster then a Titanac Passenger; 11 years later I know it was the best decision of my life.

дек 19, 2011 5:33pm EST  --  Report as abuse
Majick1 wrote:
Great now they will take that 39 Billion and repair, rebuild and improve their network so they can provide the best service for their customers!
Ok, so they will party, give company officers ridiculous bonuses and hire consultants to see how they further screw their customers, but at least the monopoly is broken and customers still have a choice.

дек 19, 2011 5:40pm EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.