By Gautham Nagesh - 09/01/11 11:44 AM EDT
AT&T's proposed acquisition of T-Mobile USA was left on
life support Wednesday when the Justice Department sued to block the deal, but
the telecom giant is not giving up without a fight — one that will likely stretch
well into 2012.
There's plenty at stake for AT&T, since the firm would have to pay T-Mobile $3 billion in cash plus another $3 billion in spectrum and other incentives should the deal fall through for any reason. And recent history has shown blocking a merger under antitrust law is no sure thing: in 2004 a judge ruled against the government in an antitrust case concerning Oracle's purchase of PeopleSoft. AT&T has already promised to contest the case "vigorously."
But the Justice Department's lawsuit could be just the beginning of AT&T's woes. The Federal Communications Commission is also reviewing the deal, and Chairman Julius Genachowski issued a statement Wednesday that expressed greater concern about the deal than he has previously revealed, a stance echoed by Democratic Commissioner Michael Copps. Most observers agree the commission is highly unlikely to approve the deal outright in light of the DOJ lawsuit.
The most likely outcome would be for the commission to hold off on its proceedings until the court case is resolved, which could stretch well into next year. Should the FCC decide to act, it could designate the merger for an administrative hearing, the first step toward blocking the transfer of spectrum licenses. The commission's review is to determine whether the deal is in the public interest and considered a higher bar for companies to meet than antitrust law.
A long, drawn-out court case could cost AT&T anyhow, since according to an analyst with Stifel Nicolaus, the firm must pay T-Mobile the break-up fee if the deal isn't approved by September 2012. Public Knowledge legal director Harold Feld said AT&T must win its court case expeditiously while convincing the FCC to hold off on its review, a move that would no doubt add to the considerable criticism already levied at Genachowski and his colleagues.
As for T-Mobile, the firm voiced its displeasure with the Justice Department's decision on Wednesday, and its position as the fourth-largest national wireless carrier remains tenuous if the deal is blocked. The $6 billion in spectrum and cash from AT&T would certainly appear to help, considering parent company Deutsche Telekom's claim it lacks the resources to deploy a next-generation wireless network in the U.S.
But the firm could also find itself ripe for a takeover by Sprint, which was buoyed by Wednesday's news and had reportedly been interested in buying T-Mobile before AT&T's bid. Whether the government would be more accepting of that deal could also be in question; the Justice Department made a point of arguing the importance of preserving national competition in the wireless market after AT&T had attempted to argue that local competition is sufficient. With only four national wireless carriers, a move by the FCC to block the merger could have major implications against future consolidation in the wireless market.