With merger in doubt, what’s next for AT&T and T-Mobile?

John Dimsdale Nov 25, 2011

With merger in doubt, what’s next for AT&T and T-Mobile?

John Dimsdale Nov 25, 2011

Tess Vigeland: We reported yesterday that AT&T and T-Mobile had withdrawn their merger application from the Federal Communications Commission. It seems the deal was giving antitrust regulators a little too much indigestion. The two cell-phone giants insist they’re not giving up on joining forces. But many analysts say that by pulling their application, the telecom giants acknowledged a merger has little chance of getting the government’s seal of approval.

From Washington, Marketplace’s John Dimsdale reports on what’s next for the two companies.

John Dimsdale: Another sign that the deal is on life support: AT&T announced it will take a $4 billion charge against this quarter’s earnings to pay for a break-up fee promised to T-Mobile if the merger falls through.

Telecom analyst Jeff Kagan says that’s a significant windfall for T-Mobile.

Jeff Kagan: This could be the ammunition that they need to come out shooting.

T-Mobile has been losing customers, but has options now that AT&T’s takeover bid is in trouble. Kagan says perhaps a cable TV company — Time Warner or Cox — will see T-Mobile as a way to break into the cell-phone business. Or T-Mobile could become a low-priced alternative for a certain type of consumer.

Kagan: There’s still a huge market of customers in the wirelsss industry that’s just not interested in all the iPhone, smartphone, whiz-bang technology. It’s not for everybody. There’s still an opportunity for T-Mobile to grow in that other segment of the marketplace.

But the deal’s failure is a blow to AT&T’s search for new wireless space called spectrum. Analyst Craig Moffett with Sanford C Bernstein says without T-Mobile, AT&T will have to compete for limited airwaves with everyone else.

Craig Moffett: AT&T will have to go back to the drawing board in their search for spectrum, but they are in effect sort of back into the pack and everyone in this business is looking for additional airwaves.

The court hearing for the Justice Department’s challenge to the merger is scheduled for February. Moffett says AT&T may use the time in between to work out a compromise with regulators.

In Washington, I’m John Dimsdale for Marketplace.

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