AT&T wasn’t happy to cancel its bid to purchase T-Mobile for $39 billion, as the company candidly stated when announcing the historic retreat late Monday.
But T-Mobile’s German parent company Deutsche Telekom is savoring a “record high break-up fee,” of $4 billion that AT&T agreed to pay the company if the merger fell through.
“This is one of the highest payments ever agreed between two companies for the termination of a purchase agreement,” Deutsche Telekom noted up high in a statement provided to TPM. “It includes a cash payment of USD 3 billion to Deutsche Telekom, which is expected to be made by the end of this year. In addition, it contains a large package of mobile communications spectrum and a long-term agreement on UMTS roaming within the U.S. for T-Mobile USA.”
Indeed, specifically, T-Mobile will take control of AT&T’s “large package of AWS mobile spectrum,” in 128 regions across the country, “including 12 of the top 20 markets (Los Angeles, Dallas, Houston, Atlanta, Washington, Boston, San Francisco, Phoenix, San Diego, Denver, Baltimore and Seattle).”
Deutsche Telekom further boasted that thanks to the spectrum allocation, it would expand coverage from 230 million to 280 million people, including many regions where T-Mobile previously didn’t – and couldn’t hope to – operate.
The spectrum component of the break-up package, worth $1 billion, might not sound as immediately appealing as the liquid cash that AT&T is handing over to Deutsche Telekom for its troubles, but it is arguably far more valuable in the long term: The whole reason AT&T said it needed to acquire T-Mobile in the first place was to obtain T-Mobile’s spectrum licenses, that is, the permission from the Federal Communications Commission to use certain bands of the radio spectrum from mobile phone communications.
AT&T, T-Mobile, and other giant telecom companies — as well as numerous experts, even FCC Chairman Julian Genachowski — agree that the current way of provisioning spectrum — usually via government auctions of unused or old spectrum ranges — will not be enough to accomodate the growing demand by users for more spectrum to support their increasingly hefty data appetites, namely for streaming video and other rich multimedia.
As such, AT&T has long argued that the merger with T-Mobile would be the most cost-effective, economically beneficial way for it provide consumers with a better mobile experience. In its statement detailing the merger break-up, Deutsche Telekom joined with AT&T in blasting the Justice Department and the Federal Communications Commission for blocking the merger.
Deutsche Telekom’s statement reads:
“Both companies are in agreement that the broad opposition by the U.S. Department of Justice (DoJ) and the U.S. telecommunications regulator (FCC) is making it increasingly unlikely that the transaction will close. Both companies are of the opinion that important arguments in support of the transaction have been ignored, such as the significant improvement in high-speed mobile network coverage for the U.S. market, as well as the positive employment effects. In addition there was no indication that either authority would move away from it’s non-supportive stance in return for concessions from the parties in terms of the scope and structure of the transaction.”
That last statement from Deutsche Telekom, that “there was no indication either authority” would wavier in its stance even if AT&T were to offer concessions — say a 40 percent sale of T-Mobile’s assets, as AT&T had reportedly been previously contemplating — indicate that the government would do whatever it could to stop the merger from going forward. In the end, that didn’t involve much: Merely an antitrust lawsuit filed by the Justice Department and a lengthy report from the the FCC outlining just why it thought the merger would be bad for the public.
Of course, not everything is gravy for Deutsche Telekom or T-Mobile now. In fact, though Deutsche Telekom said it will resume full operations of T-Mobile for the time being (“…will go back to reporting T-Mobile USA as continuing operations in future”), the longterm future of T-Mobile is anything but clear.
“There’s no Plan B,” said Deutsche Telekom spokesperson Andreas Fuchs, the New York Times Dealbook reported. “We’re back at the starting point.”
The whole reason Deutsche Telekom wanted to sell T-Mobile to begin with because it was a costly and low-performing enterprise without a viable plan going forward: T-Mobile only recently began adding customers again after nine months of losses, and even then only due to the company’s cheap “value” plans. But the company still lacks necessary infrastructure and spectrum needed to help it compete with the other “Big Four” national wireless carriers: Verizon, AT&T and Sprint. Speculation from the media currently has it that Sprint would be a good match to merge with T-Mobile, but satellite TV company DISH has also expressed an interest.
Read Deutsche Telekom‘s full statement here.
