Report: AT&T, Deutsche Telekom consider network-sharing 'Plan B'

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AT&T (NYSE:T) and T-Mobile USA parent Deutsche Telekom are mulling whether to create a network-sharing joint venture in the event that AT&T's proposed $39 billion acquisition of T-Mobile falls apart, according to a report in the Wall Street Journal. However, a separate Reuters report cast doubt on the possibility of a joint venture.

The WSJ report, which cited unnamed sources familiar with the matter, said that the talks to create such a joint venture are not advanced and that it was being considered as a "Plan B" if the deal should fail. The network-sharing deal, which has been bandied about by analysts for the past several months, is notable in light of the fact that both AT&T and Deutsche Telekom have steadfastly refused to even consider a Plan B to the deal.

Representatives from AT&T did not immediately respond to a request for comment and a Deutsche Telekom spokesman declined to comment.

According to the WSJ report, such a joint venture would help alleviate the spectrum constraints AT&T and T-Mobile are likely to face in the coming years, which was a primary reason AT&T decided to pursue T-Mobile in the first place. Under the deal, both companies would get access to T-Mobile's spectrum, but Deutsche Telekom would maintain T-Mobile's customers. The hope, according to the report, is that if T-Mobile were left as a viable competitor, such a deal would pass muster with the Department of Justice, which has sued to block AT&T's purchase of T-Mobile on antitrust grounds.

However, Reuters reported, also citing unnamed sources, that AT&T and Deutsche Telekom are still battling to save the deal and are not in talks on network sharing. "There are currently no talks about a (network sharing) joint venture," one source told Reuters. "This would signal that they have given up. This is not the case, we're still betting on victory, not on the second-best solution," the source said.

More pressure was placed on the deal this week in the wake of an FCC staff report that blasted many of the contentions AT&T and Deutsche Telekom had made about the public interest benefits of the merger. AT&T protested the release of the FCC staff analysis, arguing that it was improper for the FCC to do so, since the FCC had agreed to allow AT&T and Deutsche Telekom to withdraw their application for the deal.

The two companies withdrew their application on Thanksgiving to focus on the Justice Department's case. A trial is set to begin Feb. 13. Under the current terms of the merger agreement, if the deal does eventually fall apart, AT&T will be required to pay Deutsche Telekom a $6 billion breakup fee, which includes $3 billion in cash and $3 billion in spectrum and roaming agreements.

For more:
- see this WSJ article (sub. req.)
- see this Reuters article

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