AT&T has announced it is withdrawing its application to buy T-Mobile USA from the FCC, adding a $4bn charge to its Q4 2011 finances in anticipation of potential breakup fees, but insists that this isn't the end of its acquisition plans. Instead, the carrier says, it and Deutsche Telekom AG intend to "focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice" and will re-attempt FCC approval after that has been achieved. Nonetheless, the addition of the hefty penalty charge is an ominous acknowledgement to investors that the deal is on very shaky ground.
The two companies already have litigation pending in the District of Columbia, which could help secure Department of Justice approval, but faced renewed interest from the FCC as to whether the deal could be counter to consumer good. Earlier this week, the FCC announced it was requesting an administrative hearing of the type that helped scupper the proposed merger of EchoStar and DirecTV back in 2002.
The $4bn meanwhile - which is made up of $3bn in cash and wireless spectrum with a value estimated by AT&T to be $1bn - is part of the carrier's penalty pay-out should the deal fall through. In short, even if Deutsche Telekom AG can't shift T-Mobile USA off its hands, it will still walk away with a hefty chunk of AT&T's purse along with some extra spectrum to keep it happy.
Although billed as a positive thing to subscribers from the outset, the AT&T acquisition of T-Mobile USA has been fraught from the start. The FCC has been wary of the deal and insisted on giving it extra attention, with various hearings and trials pushing the potential complete date back into mid-2012. The FCC's administrative hearing plans could have delayed that even later.