AT&T braces itself for $4bn charge and loss of TMo
Carrier running out of options to salvage its acquisition plan for T-Mobile USA as regulator calls for hearing
Published: 23 November, 2011
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AT&T and Deutsche Telekom have temporarily withdrawn their application to the FCC for permission for the former to acquire T-Mobile USA, and the US giant will take a $4bn hit in its fourth quarter. This will be a pre-tax accounting charge related to $3bn in cash and $1bn in spectrum, to reflect the potential break-up fee payable to Deutsche Telekom should the deal fail. The latest action was sparked by the FCC's decision to demand an agency hearing about the proposed merger, which is in effect a signal that it aims to block the transaction.
Both companies insist they will continue to pursue the acquisition and in a statement, said the hiatus would merely allow them to "consolidate their strength and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice". This indicates that they will cross the hurdle of the February trial, in which the DoJ will seek to block the deal on competition grounds, before reapplying for regulator approval. The FCC's proposed agency hearing would, in any case, not take place until well after the DoJ trial, and might take six months to conclude.
AT&T is presumably taking the view that, should it prevail with the DoJ, the FCC's case would be much weakened, since it is based on similar criteria about competition and consumer choice. And if it fails, the merger will probably be effectively doomed, in which case there is little point in spending time and resource in the immediate months on fighting on two fronts.
AT&T's options are certainly running out in its embattled quest to acquire its smaller rival, with both the DOJ and FCC ranged against it. Following the FCC's decision to pursue an administrative hearing, AT&T's SVP of corporate communications, Larry Solomon, said: "The FCC's action today is disappointing. It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the US economy desperately needs both. At this time, we are reviewing all options."
It is not clear how many still remain, however, despite support for the deal in some quarters such as Silicon Valley, and a recent statement from Verizon that it would not oppose the deal provided it did not introduce further regulation into the US market. The FCC's decision to hold a hearing carries less weight than the DoJ lawsuit, which will be heard in February, and in the end, the regulator is likely to follow the decision of that court. However, it is another sign of the huge level of opposition to the merger, much of which has been orchestrated by smaller carriers like Sprint and C-Spire, pleading a reduction of competition and consumer choice.
Jeffrey Silva, an analyst at Medley Global Advisors, told Bloomberg: "The FCC and DoJ work hand in hand. The FCC's move shows that AT&T has made no progress in the negotiations with the DoJ."
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