AT&T backs off the T-Mobile fight

Following the Federal Communications Commission’s decision to send the $39-billion proposed merger of AT&T (s t) and T-Mobile USA to an administrative hearing on Tuesday, AT&T has withdrawn its official application to combine its spectrum with T-Mobile’s. The company also said that it will take a $4-billion charge against earnings should the deal fall through. Both actions, which were taken on Wednesday, indicate that AT&T’s confidence in the deal is waning, and could be the final actions before a formal abandonment of the purchase.
AT&T still plans to fight the antitrust case that the Department of Justice has filed and has not said it plans to walk away from its deal just yet, but it clearly has realized that the forces arrayed against this combination will be hard to quell. As I noted on Tuesday, unless AT&T or T-Mobile pull the plug between now and then, the next big date should be the Department of Justice lawsuit hearing in February. From AT&T’s statement:

AT&T Inc. and Deutsche Telekom AG are continuing to pursue the sale of Deutsche Telekom’s U.S. wireless assets to AT&T and are taking this step to facilitate the consideration of all options at the FCC and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice either through the litigation pending before the United States District Court for the District of Columbia, Case No. 1:11-cv-01560 (ESH) or alternate means. As soon as practical, AT&T Inc. and Deutsche Telekom AG intend to seek the necessary FCC approval.

The Department of Justice has come out against the deal, citing a lack of competition, while the FCC this week determined that the new entity wouldn’t create the jobs that AT&T has said it would, and in fact, would result in, “a massive loss of U.S. jobs and investment.” Since no one is buying AT&T’s and T-Mobile’s claims, perhaps the next big question is what happens next with T-Mobile. In the meantime, by taking a charge against its fourth-quarter earnings that reflects a $3-billion breakup fee and the $1-billion value of T-Mobile’s spectrum, AT&T is clearly prepping for trouble.
Given that the charge will occur before its day in court, I’m not sure if we should expect AT&T to walk before the close of this year, or if it’s just being cautious with Wall Street.