By Brendan Sasso - 12/19/11 09:46 PM EST
AT&T abandoned its $39 billion bid to buy T-Mobile on Monday, acknowledging that it couldn't overcome opposition from the Obama administration.
Both the Justice Department and the Federal Communications Commission (FCC) had moved to block the deal, arguing the merger of the second and fourth largest wireless carriers would stifle competition.
AT&T has agreed to pay T-Mobile's parent company, Deutsche Telekom, a $4 billion breakup fee.
AT&T CEO Randall Stephenson said his company will "continue to be aggressive in leading the mobile Internet revolution."
He promised AT&T will continue to invest in its network and urged Congress to pass legislation to free up more airwaves for mobile devices.
For AT&T, it's a disappointing end to a bold business move that seemed to have all 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. Many predicted the deal would sail to approval.
But in August, the Justice Department filed a lawsuit that argued the deal would violate antitrust law.
The merger would have created the nation's largest mobile carrier and would have reduced the number of national firms from four to three. If the deal had been approved, Verizon Wireless and AT&T would have accounted for about 80 percent of the wireless market, with Sprint a distant third.
As AT&T and T-Mobile geared up to defend their deal 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.
AT&T asked a federal judge last week to put the Justice Department trial on hold so it could re-evaluate its options.
Consumer groups which had lobbied against the deal celebrated its demise.
"In this age of cynicism, it is important for the American people to see that Washington does not always go to the highest bidder," Harold Feld, legal director of Public Knowledge, said in a news release. "The Department of Justice and the Federal Communications Commission stood up to tremendous lobbying pressure as AT&T spent tens of millions of dollars trying to push this merger through."
Free Press also credited the Obama administration for standing up to the two companies.
"The Obama administration deserves praise and credit for standing up to AT&T's relentless lobbying and propaganda," Free Press President Craig Aaron said. "And the American public can breathe a sigh of relief that this time the public interest trumped AT&T's self-serving attempt to kill off what little competition remains in the wireless market."
Andrew Schwartzman, policy director of public interest law firm Media Access Project, said the announcement "proves that law trumps politics."
“This merger would have put us one step away from the monopoly we had during the Ma Bell years," Sen. Al Franken (D-Minn.) said in a statement. "Wireless telecommunication plays a central role in the 21st century American economy, and I’m relieved that we are no longer at risk of concentrating such enormous power in the hands of AT&T and Verizon.”