AT&T and Deutsche Telekom (DT) have aborted the planned US$39 billion acquisition of T-Mobile USA by the US number two operator, with the German company stating that “both companies are in agreement that the broad opposition by the US Department of Justice and the US telecommunications regulator (FCC) is making it increasingly unlikely that the transition will close.”
Under the terms of the deal, Deutsche Telekom will now receive US$3 billion in cash, as well as “a large package of mobile communications spectrum and a long-term agreement on [3G] roaming within the US for T-Mobile USA.”
The settlement package was described by the Germany-based company as “one of the highest payments ever agreed between two companies for the termination of a purchase agreement.” It also said that its negotiations with AT&T was “characterised by fairness and respect at all times.”
While the US$3 billion, spectrum and roaming will buy Deutsche Telekom some time, significant attention is being focused on its strategy now that its “plan A” is no longer achievable. Previously, alliances with Sprint, Leap Wireless and satellite company Dish Networks have been mooted. The fact remains that the argument for disposing of T-Mobile – that the business requires significant investment in the medium term – is unchanged.
However, AT&T will also face challenges, with the company itself noting that the need for spectrum “has not diminished and must be addressed immediately.” Prior to its merger announcement, it had announced a deal with Qualcomm to acquire 700MHz spectrum, which became caught-up in the regulatory issues surrounding the T-Mobile USA transaction.
Unsurprisingly, Sprint, which was among the most vocal opponents of the deal, saw the move as a positive, arguing that “this is the right decision for consumers, competition and innovation in the wireless industry.”
In a statement, Vonya McCann, Sprint’s SVP of Government Affairs, said: “From the beginning, Sprint has stood with consumers who spoke loudly and clearly that AT&T’s proposed takeover of T-Mobile would create an undeniable duopoly that would have resulted in higher prices, less innovation and fewer choices for the American consumer.”
Deutsche Telekom said that it will now go back to reporting T-Mobile USA as a continuing operation. It has indicated that following the US$3 billion settlement, its dividend policy will remain unchanged, and that “the cash component of the break-up fee directly reduces Deutsche Telekom’s net debt.”
T-Mobile USA is set to receive spectrum in 128 market areas, including 12 of the top 20 areas (Los Angeles, Dallas, Houston, Atlanta, Washington, Boston, San Francisco, Phoenix, San Diego, Denver, Baltimore and Seattle). It also said the roaming deal will “allow the company to improve its footprint significantly among the US population and offer its customers better broadband coverage for mobile communications services in the future.”
However, with larger rivals AT&T and Verizon Wireless rolling out LTE, and Sprint having a network evolution path that includes both LTE and (for the foreseeable future) WiMAX, the issue remains that T-Mobile USA does not have a 4G strategy in place. It could look to work with wholesale operator Clearwire or its planned rival LightSquared as a way to address this, addressing its own spectrum issues and reducing its capex.