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Published December 19 2011

AT&T ends bid for T-Mobile; will take $4 billion charge

DALLAS — After nine months of intense and costly battle with regulators, AT&T Inc. on Monday abandoned its planned $39 billion takeover of T-Mobile USA, a merger that would have created the largest wireless provider in the nation.

But the Dallas-based company — which must pay $4 billion in pre-tax fees to T-Mobile because of the failed deal — didn’t surrender quietly.

Chairman and CEO Randall Stephenson said that without T-Mobile, AT&T would have to obtain new spectrum elsewhere in order to meet exploding demand.

Stephenson advised policymakers that, in the short term, “they should allow the free markets to work” and enact legislation to meet longer-term needs.

The “free markets” remark was most certainly a reference to regulators as well as lawmakers. Both the Federal Communications Commission and the U.S. Department of Justice opposed the T-Mobile deal. The FCC said it wasn’t in the public interest, and the DOJ, which filed an antitrust suit, said it was anticompetitive.

Stephenson, who said AT&T will continue to invest and “be aggressive in leading the mobile Internet revolution,” also urged quick approval of his company’s purchase of nearly $2 billion in unused spectrum from Qualcomm Inc., still pending before the FCC.

“The mobile internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation,” Stephenson said in a statement, “but only if companies are allowed to react quickly to customer needs and market forces.”

Andrew Gavil, a professor at the Howard University School of Law, said one outcome of the failed deal will be more pressure on the FCC to provide more spectrum.

“Hunger for spectrum fueled this deal, at least in part, and if the FCC and DOJ don’t want to see continued concentration in the industry driven by the same need, supply has to expand,” Gavil said in an email.

FCC Chairman Julius Genachowski, in a statement, said his agency is committed to ensuring a competitive mobile marketplace. “This deal would have done the opposite,” he said.

“We agree with AT&T that Congress should pass incentive auction legislation that will unleash new spectrum for mobile broadband,” Genachowski said.

Verizon Wireless is the largest wireless provider in the nation, followed by AT&T, Sprint Nextel and T-Mobile.

Sprint vigorously opposed the merger and filed its own antitrust lawsuit, claiming the transaction would create a wireless duopoly of AT&T and Verizon, the Twin Bells, cramping competition and raising prices.

“This is the right decision for consumers, competition and innovation in the wireless industry,” Sprint said in a statement of AT&T’s decision.

Andrew Feld, legal director for Public Knowledge, a Washington, D.C., consumer advocacy group, praised regulators.

“The DOJ and FCC deserve tremendous credit for standing up to AT&T’s lobbying machine, which spent literally tens of millions of dollars trying to get this deal through,” Feld said.

Public Knowledge, which has opposed the deal from the beginning, issued one report that estimated AT&T spent about $40 million nationally on television and print advertising in support of the merger. An AT&T spokesman declined comment on the amount spent.

When the deal was announced in March, Stephenson said AT&T expected to make some concessions — divesting spectrum and customers — to get approval from regulators, but that ultimately the merger would go through.

That’s the way it has worked in the past with mergers involving AT&T and its predecessor companies.

But this transaction, one of the largest since the global economic collapse of 2008 and 2009, met mounting opposition.

The DOJ filed its antitrust complaint in August. In late November, the FCC’s Genachowski called Stephenson and said he would be sending a draft order to his fellow commissioners designating the T-Mobile transaction for a rare hearing before an administrative law judge.

The FCC’s staff had concluded that the merger would likely eliminate thousands of jobs, reduce competition and raise prices.

AT&T and Deutsche Telekom AG, parent of T-Mobile, quickly withdrew their merger applications from the FCC, saying they would focus on the antitrust suit.

Many observers then called the deal dead, but AT&T continued to say it would press forward because the deal benefited consumers.

Last week, however, AT&T and Deutsche Telekom sought, and were granted, a month’s delay in the court proceedings to fully explore all options, including abandonment.