By Brendan Sasso - 12/12/11 08:20 PM EST
AT&T and T-Mobile will have to decide within the next month whether to abandon their blockbuster $39 billion merger following a series of setbacks that have left the deal on life support.
On Monday, the Justice Department and AT&T agreed to put their trial on hold to give the company “time to evaluate all options.” AT&T has until Jan. 12 to decide how to proceed.
The Justice Department has sued to block the deal on antitrust grounds, arguing the merger would stifle competition in the wireless market. The Federal Communications Commission also opposes the deal.
"AT&T is committed to working with [T-Mobile's parent company] Deutsche Telekom to find a solution that is in the best interests of our respective customers, shareholders and employees," AT&T said in a statement.
"We are actively considering whether and how to revise our current transaction to achieve the necessary regulatory approvals so that we can deliver the capacity enhancements and improved customer service that can only be derived from combining our two companies' wireless assets.”
It is a stunning reversal of fortune for a deal that seemed to have all of the political momentum just a few months ago.
Dozens of Democratic and Republican lawmakers wrote letters urging regulators to approve the deal, and labor unions lobbied in favor of it.
AT&T said the deal would improve service for its customers and allow it to make investments that would create jobs, and many predicted the deal would sail to approval.
But in August, the Justice Department filed a lawsuit that argues the merger of the second- and fourth-largest wireless companies would violate antitrust law.
As the companies geared up to defend their merger in the courtroom, the FCC took its own step towards killing the deal. Last month, FCC Chairman Julius Genachowski recommended holding a months-long administrative hearing to review it, saying he was unconvinced it would benefit the public.
An FCC staff report concluded the merger would harm competition throughout the country and lead to massive layoffs.
Daunted by the prospect of fighting two simultaneous legal battles, AT&T withdrew its application with the FCC, saying it planned to re-file if the deal survived the Justice Department's lawsuit.
But Justice Department lawyer Joseph Wayland argued in court last week that without a pending application with the FCC, there was no active deal for the government to challenge. He said AT&T would have to re-apply with the FCC for the lawsuit to go forward.
The delay will make it even more difficult for AT&T to meet its Sept. 20, 2012, contractual deadline to close the deal.
If the merger is not approved by then, AT&T owes T-Mobile $4 billion.
Consumer advocacy group Public Knowledge, which opposes the deal, urged AT&T to walk away.
"We hope that AT&T will take the contemplative time over the holidays to realize that it should now call the transaction to an orderly halt," Harold Feld, Public Knowledge's legal director, said in a news release. "It is time for AT&T to end this now and save everyone a lot of time and money for a case it cannot win."
—This story was first posted at 1:45 p.m. and has been updated.