AT&T scrapped its $39 billion takeover bid for T-Mobile due to blocks thrown up by President Barack Obama’s administration preventing the company from creating the largest cellphone service provider in the US.
Both companies lose out as the deal fails to go ahead. AT&T will no longer be able to clear up its network and speed up service for cellular data coverage on devices heavily used in business, such as smartphones and iPhones, through T-Mobile’s cellular airwaves. Meanwhile, T-Mobile, which is trailing behind the three other national operators in the US - AT&T, Sprint Nextel and Verizon Wireless - has less promising prospects in absence of the deal.
The US Department of Justice undertook legal proceedings to block the deal in August, and the Federal Communications Commission had also come out against the merger saying it would make the wireless market too concentrated, drive prices higher, restrict innovation for consumers and lead to anti-competitive practices.
Had the deal gone ahead, the two firms combined would have resulted in a duopoly of Verizon Wireless and AT&T, which would have accounted for close to 75% of the wireless market.
AT&T to Pay Deutsche Telekom $6 Billion Breakup Fee
AT&T now owes Deutsche Telekom a breakup fee of $6 billion, which it will pay in the form of cash and wireless spectrum access in cities including Boston and Los Angeles.
Deutsche Telekom has signaled its wish to get rid of T-Mobile in the long term.
Deutsche Telekom May Seek Partner for T-Mobile
Satellite TV provider Dish Network could be a possible match for T-Mobile to bolster the company through shared wireless holdings and make it more competitive against Verizon and AT&T.
Sprint is another potential partner for T-Mobile, but the company has had recourse to debt markets for the necessary $4 billion to pay for its debt maturities. Sprint has also paid out for a network upgrade and struggled to pay expenses following its deal to sell Apple’s iPhone. The company is $3 billion short in vendor financing to back its network upgrade.
Even if Deutsche Telekom does find a match for T-Mobile, it will still be left holding an investment-hungry company.
AT&T has come under fire for announcing that the merger would lead to job creation despite having informed investors of the contrary. The company was also found to have paid unrelated charity outfits to provide public support for the merger while having no telecommunications expertise.
Dispersions have also been cast on its economic models, and the company’s aggressive government lobbying has been criticized.
Key Statistics – Global Wireless Telecommunications Services (source: MarketLine)
- The world wireless telecommunication services market generates almost $891 billion in 2010, having grown nearly 9% yearly for four years.
- Wireless telecommunication services consumption volumes grew at 16% a year for the four-year period ending 2010 to reach almost 4,100 million subscribers.
- Market growth is expected to slow to a rate of 7.5% yearly through 2015 to exceed $1.3 trillion.