AT&T left scrambling to revive deal

Analysts are struggling to understand what went wrong for the AT&T/T-Mobile deal.

“I'm not sure they actually did anything wrong,” says Michael Sohn, a former FCC general counsel, now an antitrust lawyer at Davis Polk. “They are facing an administration that prides itself on aggressively enforcing antitrust laws.” Analysts and lawyers are split on what, if anything, could get the deal back on track. Some believe that the Department of Justice’s move is a negotiating ploy to extract greater concessions. Antitrust experts say the DoJ’s rapid move to sue suggests that the two sides may not yet have put every remedy on the table, and see the judge hearing the case as better news for the companies than for the DoJ. But most fear for AT&T’s chances of keeping the deal alive. James Ratcliffe, a Barclays Capital analyst, dismissed the idea that the DoJ’s suit was a negotiating tactic. Craig Moffett of Bernstein Research concluded that the deal “can be considered all but definitely dead.”

AT&T could offer to acquire less spectrum from T-Mobile USA, sell spectrum in the most concentrated markets to rivals, or even agree to price controls to address the DoJ’s concern that losing T-Mobile would remove the low-price competitor from the market. But the DoJ’s complaint seems to signal it has little interest in possible remedies, dismissing the “efficiencies” AT&T had proposed in a single sentence. Another problem for AT&T is that the DoJ has rejected its argument that mobile market power should be measured on a regional or local basis, saying national market share is the relevant measure. Industry advisers say it is hard to see how local disposals could create another credible national operator. The biggest hurdle may be the DoJ’s argument that the market needs four national players, not three, one banker said. But AT&T and T-Mobile still plan to fight, noting that the DoJ has the burden of proving that the merger would be anti-competitive.