Despite mounting U.S. government opposition, AT&T has so far vowed to continue seeking antitrust clearance for its $39 billion merger with rival wireless carrier T-Mobile USA.
Analysts say the battle may be unwinnable.
The Federal Communications Commission last week allowed AT&T and T-Mobile parent Deutsche Telekom to withdraw license transfer applications, just days after the FCC announced that its staff had determined that the deal, first revealed in March , was contrary to the public interest .
AT&T said it sought the license withdrawal so it can concentrate on fighting a Department of Justice lawsuit that aims to block the merger on antitrust grounds. To be safe, though, AT&T set aside $4 billion to pay contractual break-up fees to Deutsche Telekom if the deal fails.
AT&T and Deutsche Telekom would have to refile an application for license transfer at the FCC should they prevail in the DOJ court case, now slated to begin Feb. 13, 2012.
The new application would have to better prove to skeptical FCC regulators that AT&T's claim that the merger would create 96,000 U.S. jobs is valid. The FCC staff report, released over the objections of AT&T because it still required a vote by the full commission, concluded that a merger is more likely to cause job losses.
Since the FCC move, AT&T has reportedly initiated negotiations to sell up to 40% of T-Mobile's assets to answer the antitrust concerns.
Analysts are skeptical that AT&T can overcome FCC and DOJ objections and eventually close the deal.
Phillip Redman, an analyst at Gartner, suggested that AT&T would have to sell off too many assets -- including wireless spectrum and customers -- to satisfy government objections. "It may not be worth having the merger," he said.
Maurice Stucke, an associate professor at the University of Tennessee College of Law and a former DOJ attorney, said that selling spectrum and customer assets to smaller companies would give AT&T a better chance to win DOJ approval, but he added that the merger "is still unlikely."
"DOJ has a good case under the original merger deal," Stucke said, noting that the federal Clayton Antitrust Act only requires the DOJ to show that a merger will "substantially lessen competition."
Chris Lemley, a marketing professor at Georgia State University who has researched the U.S. wireless market, said that if the deal fails, AT&T and T-Mobile "will still try to get what each wanted out of this in other ways. Neither Deutsche Telekom nor AT&T are stupid.... They have both looked at strategies and different options for a long time."
For instance, he said that Deutsche Telekom could use the $4 billion break-up payment to improve its network and make T-Mobile more marketable to "any number" of competitors.
Jeff Kagan, an independent analyst, suggested that T-Mobile could be sold to Sprint to create a credible alternative to top carriers AT&T and Verizon Wireless.
Others have speculated that AT&T and T-Mobile may form a joint venture if the deal is rejected.
Gross is a reporter for the IDG News Service. Mikael Rickns of the IDG News Service contributed to this story.
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