After tremendous government opposition, AT&T and T-Mobile have called off their proposed $39 billion dollar merger. A statement from AT&T regarding the cancellation of the deal blamed the mountain of government opposition as the primary cause.
From the AT&T statement:
“The actions by the Federal Communications Commission and the Department of Justice to block this transaction do not change the realities of the U.S. wireless industry. It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately. The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled.”
Deutsche Telekom, parent company of T-Mobile appears to be the winner of the consolation prize for the breakup. As a result of the failed deal, Deutsche Telekom will receive $3 billion in cash, a package of wireless spectrum and a long-term agreement on roaming within the U.S. for T-Mobile USA. In total, Deutsche Telekom will receive more than $4 billion because of the cancelled merger.
Deutsche Telekom made the spectrum arrangement public in a press release on Tuesday. As part of the breakup deal, T-Mobile USA will get wireless spectrum in 128 markets, including 12 of the top 20 markets, including Los Angeles; Dallas; Houston; Atlanta; Washington, D.C.; Boston; San Francisco; Phoenix; San Diego; Denver; Baltimore; and Seattle.
As a result of the roaming agreement, T-Mobile will be able to roam onto AT&T's network for more than seven years. Deutsche Telekom claims that this will allow T-Mobile to significantly improve its footprint in the U.S. and offer better broadband coverage. Specifically the company will be able to increase its network coverage from 230 million potential customers at present to 280 million.
"As a result of the agreement with AT&T, coverage will be extended to many regions of the U.S. in which T-Mobile USA previously had neither its own high-speed mobile communications network nor the associated roaming agreements," Deutsche Telekom said in a statement.
Even with the infusion of cash and spectrum to T-Mobile, the company is still deep in debt, and facing fierce competition in the US market. Some analysts predict that Deutsche Telekom will eventually dispose of T-Mobile, due to its unsuccessful bid to turn the company into a top competitor in the US market.
While the FCC objected to the AT&T/T-Mobile merger, they did approve AT&T's $1.9 billion acquisition of airwaves from Qualcomm Inc. The FCC approved the deal on a 3-1 vote with some minor conditions. AT&T and Qualcomm could finalize the deal by the end of the year.
AT&T is purchasing licenses from Qualcomm which would be used to supplement its next-generation LTE network nationally. Specifically, AT&T's new wireless licenses applies to the 700 MHz spectrum, part of which is used by the public safety community.
AT&T sent a clear message to the Obama administration regarding an increasingly larger demand for wireless spectrum to help expand both cellular and broadband access. One of the primary benefits touted in the AT&T/T-Mobile application was increasing broadband access in rural areas of the country. In AT&T's statement regarding its withdrawal of the merger application, the company said it would continue to invest in expanding its network.
“The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to customer needs and market forces,” AT&T Chairman Randall L. Stephenson said.