The news: The wireless world got a shock on the afternoon of Sunday, March 20, when AT&T (NYSE:T) announced its plans to acquire T-Mobile USA from Deutsche Telekom for $39 billion. The merger, which combined the No. 2 and No. 4 U.S. wireless carriers, would have dramatically increased AT&T's subscriber base from 95.5 million to nearly 130 million. AT&T argued the deal benefited consumers by improving the networks of both companies, giving T-Mobile a path to LTE and allowing it to deploy LTE to 97 percent of all Americans.
While AT&T executives said they expected tough regulatory scrutiny, they were also confident that the deal would be approved. However, the deal was built with a $6 billion breakup fee AT&T would have to pay to Deutsche Telekom if the deal fell apart, including $3 billion in cash and $3 billion in spectrum and roaming agreements. The first signs of trouble for the deal appeared in May when AT&T CEO Randall Stephenson sparred with senators and Sprint Nextel (NYSE:S) CEO Dan Hesse warned that the deal would harm the wireless industry and make his company a more likely takeover target.
In late August, the transaction ran into its first major hurdle when the Department of Justice sued to block the deal on antitrust grounds. AT&T vowed to fight the lawsuit while simultaneously working on ways to assuage any concerns the Justice Department had. Before long, both Sprint and C Spire Wireless jumped into the fray and sued to block the deal. Analysts began talking about a potential network-sharing deal between AT&T and T-Mobile if the deal collapsed.
As the fall wore on, it became increasingly clear that the transaction was in trouble. On Thanksgiving Day, AT&T withdrew its FCC application for the deal, in part to keep an FCC staff report on the deal from being used against it in court. The FCC wound up releasing the report anyway, and it argued against many of the public-interest benefits AT&T had said would flow from the deal. (AT&T criticized both the release of the report and its findings).
Facing mounting pressure, AT&T pulled the plug on the deal Dec. 19. Ultimately, as the Washington Post has pointed out in its reporting, the deal was undone by AT&T's underestimation of the opposition it would face, particularly from the Department of Justice and the FCC. The deal was too much for regulators and the industry to swallow, and its aftermath will now dominate the debate in 2012.
Why it was significant: On its surface, the transaction was simple industry consolidation. However, the issue at the heart of AT&T's attempts to buy T-Mobile was spectrum, and the fight to get more of it. AT&T executives viewed T-Mobile's AWS spectrum as prime real estate for both HSPA+ and LTE. The fact that spectrum was included in the breakup fee also indicates how integral spectrum is to the equation.
AT&T's foibles also served to highlight opportunities other players now can exploit. Dish Network spent nearly $2.8 billion to acquire 40 MHz of S-band spectrum, and has said it might partner with T-Mobile if the AT&T/T-Mobile deal collapses. Meanwhile, Verizon Wireless (NYSE:VZ) used AT&T's distraction to its advantage by inking $3.9 billion worth of deals to get AWS spectrum from Comcast, Time Warner Cable and Bright House Networks' SpectrumCo venture as well as from Cox Communications. At the end of the day, AT&T/T-Mobile was about which companies have, want and can get spectrum.