* AT&T drops plan to buy T-Mobile USA
* Says to enter roaming agreement with T-Mobile USA
* Deutsche Telekom confirms 2011 targets
* AT&T shares down 0.38 percent
By Nicola Leske and Sinead Carew
Dec 19 AT&T has dropped its
controversial $39 billion bid for Deutsche Telekom's
U.S. wireless unit, bowing to fierce regulatory opposition and
leaving both companies scrambling for alternatives.
AT&T will have to find another way to address its shortage
of wireless airwaves while Deutsche Telekom has to go back to
the drawing board on what to do with T-Mobile USA, the
struggling U.S. business it had desperately wanted to shed.
The failure of the deal, which was seen as a tough sell from
the very start, may call AT&T Chief Executive Randall
Stephenson's judgment into question as he was clearly surprised
by the strength of regulatory opposition.
AT&T, which would have vaulted to first place in the U.S.
market if the deal succeeded, was so sure it would win approval
that it even promised Deutsche Telekom a record break-up package
that will cost it an eye-popping $4 billion this quarter.
Stephenson was caught red faced after promoting the deal on
TV the same day the U.S. Justice Department sued to block it.
From August to late November many experts were puzzled by the
companies' optimism they would win over the regulators.
"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.
As for Deutsche Telekom CEO Rene Obermann, the break-up
package will not be enough to soften the blow of losing a deal
that has been described as "almost a dream come true" for the
German telephone company. Now Obermann will have to either
invest billions more in the U.S. market or find a new way to
exit the country.
"There are very few occasions when you are forced to walk
away from the table with $4 billion in your pocket and still
feel like you've just been short-changed," said Thomas Wehmeier
of research firm Informa Telecoms & Media.
AT&T's Stephenson said the company would continue to invest
as it looks to boost its capacity, but he also urged
policy-makers to make additional spectrum available.
But the carriers' options for buying more spectrum were not
immediately clear. While AT&T was fighting for approval of its
deal, its bigger rival, Verizon Wireless, quietly forged
an agreement to buy spectrum from cable operators.
The AT&T deal failure may have other companies thinking
twice about acquisitions to bolster their competitive position.
Having to navigate "seemingly insurmountable regulatory
hurdles is likely to shake the confidence of would-be
consolidators to the core," Wehmeier said.
After announcing the deal in March, AT&T and Deutsche
Telekom in November withdrew their application for Federal
Communications Commission approval to focus on addressing
Justice Department concerns.
But that plan backfired as the judge presiding over the
Justice Department case criticized the withdrawal and gave AT&T
and Deutsche Telekom an ultimatum to figure out whether they
wanted to go ahead with fighting for the deal or not.
The deal, which was the biggest U.S. acquisition announced
this year, was also the boldest move made by Stephenson since he
took the helm at AT&T, whose previous CEO, Ed Whitacre, earned a
reputation as the industry's most renowned deal maker.
Deutsche Telekom said the deal would not change its group
forecast for 2011 expected earnings before interest, taxes,
depreciation and amortisation (EBITDA) of around 19.1 billion
euros ($24.9 billion).
"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," Pacific
Crest's Clement said.
Deutsche Telekom had planned to use the proceeds from the
sale to pay debt, launch a 5 billion euro ($6.51 billion) share
buyback and step up investments at home and in the rest of
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