AT&T may sell off T-Mobile assets to gain approval for $39B merger

Analysts are dubious that latest tactic can help AT&T overcome DOJ, FCC objections to T-Mobile deal

AT&T could be negotiating to sell off as much as 40% of T-Mobile USA assets in an effort to to garner Department of Justice approval of its imperiled $39 billion acquisition of the Deutsche Telekom unit.

Several analysts interviewed Tuesday questioned whether latest AT&T tactic will persuade the DOJ and perhaps a federal judge to approve the merger. The merger had appeared to be on life support last week following the release of a negative draft report from the Federal Communications Commission.

"I heard [AT&T] will sell off as much as 40% of T-Mobile assets, but that makes you wonder if [doing that] is worth the trouble," said Phillip Redman, a Gartner analyst.

He noted that AT&T would have to negotiate any asset sale with the DOJ. If AT&T has to give up too many wireless spectrum rights in U.S. cities, "it may not be worth having the merger," Redman said.

Media Access Project, which has consistently fought the proposed merger, issued a short statement saying that "AT&T has lost touch with reality" in considering selling T-Mobile assets to win DOJ approval. MAP also contended that one potential buyer of the assets, Leap Wireless, doesn't have the capital to be able to afford such a deal.

DOJ has filed a lawsuit against the merger in federal court on the grounds it is anti-competitive. According to a court clerk, a status hearing in the case before U.S. District Court for the District of Columbia Judge Ellen Huvelle that had been set for Wednesday has been postponed until Dec. 9. The delay sparked speculation that AT&T is negotiating with DOJ about a possible asset sale.

Any T-Mobile assets in play would include customers and wireless spectrum in various U.S. cities that would be sold to smaller carriers, perhaps to fifth-ranked Metro PCS or Leap Wireless, according to speculation by analysts and a Bloomberg Business Week report that cited unnamed sources.

Last week, AT&T and T-Mobile parent Deutsche Telekom withdrew merger-related applications before the Federal Communications Commission following the FCC's draft order calling the merger anticompetitive and not in the public interest.

In addition, AT&T said it would take a $4 billion accounting charge in the fourth quarter in case it has to pay break-up fees to Deutsche Telekom if the transaction doesn't win regulatory approval.

The $4 billion payment would include $3 billion in cash and $1 billion for the current book value of spectrum that would be transferred.

Selling off assets to smaller companies would give AT&T a somewhat better chance of winning DOJ approval of the T-Mobile merger, "but the [merger] is still unlikely," said Maurice Stucke, associate professor of law at the University of Tennessee College of Law and a former DOJ attorney.

He said AT&T faces a tough challenge in court, since the DOJ must only show the merger is anticompetitive in just one of the 100 largest U.S. wireless markets.

"DOJ has a good case under the original merger deal," Stucke said, adding that section 7 of the Clayton Act only requires that the DOJ prove that a combination will "substantially lessen competition."

Despite the odds against the deal, Stucke noted that the DOJ still "can't underestimate AT&T. There's a certain feeling that what's good for AT&T is what's good for America."

Perhaps AT&T will return to lobbying Congress or the White House to urge DOJ to settle, Stucke speculated.

Even if AT&T does sell off spectrum and other assets to smaller carriers and ultimately wins approval, "it will take a while" -- much longer than AT&T and Deutsche Telekom expected, added Chris Lemley, a professor of marketing at Georgia State University who has researched the wireless market in the U.S.

"People can't forget is that neither Deutsche Telekom nor AT&T are stupid," Lemley said. "They both have smart leadership, and you know they have both looked at strategies and different options for a long time. If the merger does fall through, both companies will still try to get what each wanted out of this in other ways."

In the event the merger falls apart, Deutsche Telekom would get the $4 billion break-up payment, which could be used to improve the T-Mobile network and make the division more marketable to "any number of foreign competitors" including carriers in Asia and Orange in Europe, Lemley said.

Jeff Kagan, an independent telecom analyst, said that if the merger fails, as it currently appears, T-Mobile could ideally be sold to Sprint, which would combine the nation's fourth and third carriers to become a credible competitor behind top carriers AT&T and Verizon Wireless.

As for AT&T potentially losing $4 billion in a break-up fee, Kagan added: "AT&T will still be strong. That is no more than a stubbed toe to the phone giant."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen , or subscribe to Matt's RSS feed . His e-mail address is .

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Copyright © 2011 IDG Communications, Inc.

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