AT&T
decided Monday to walk away from its $39 billion merger with T-Mobile USA after
opposition to the deal from the FCC and Justice Department proved
insurmountable.  

Abandoning
the deal will cost AT&T $4 billion worth of cash and spectrum, force it
into a roaming deal with T-Mobile parent Deutsche Telekom and leave it
searching for other ways to acquire badly needed spectrum.  

AT&T
said its acquisition of T-Mobile would have been an “interim solution”
to its spectrum shortage. 

“In
the absence of such steps, customers will be harmed and needed investment will
be stifled,” the company said in a statement. 

The move
to give up on the merger seemed inevitable, as the transaction faced a tough
fight from regulators who said it was anticompetitive and would have resulted
in huge job losses. 

The DOJ
filed an antitrust suit against the merger in August and the FCC said last
month it would refer the deal to an administrative hearing because it did not
find the transaction was in the best interest of consumers.  

BTIG
Research analyst Walter Piecyk said the regulatory battle cost AT&T the
chance to buy other spectrum that was on the market.  

“The
incentive for AT&T to walk rather than dragging this out until September
seems clear,” Piecyk said in a research note. “They need spectrum now
and they were missing out on spectrum deals that started to move forward
without them.”

Rival
Verizon Wireless recently agreed to pay a total of about $4 billion to snag a
massive swath of AWS spectrum from Cox Communications, Time Warner Cable, Bright House Networks and Comcast.

AT&T
said its merger with T-Mobile would create jobs and wouldn’t harm competition,
but regulators disagreed. 

The
elimination of T-Mobile as a competitor would have given AT&T and Verizon
Wireless a near duopoly hold on the U.S. wireless market, prompting the DOJ to
challenge the transaction on antitrust grounds.  

The FCC
said its analysis found the deal would have resulted in “massive” job
losses as AT&T eliminated redundant positions. 

The FCC
and DOJ also appeared to have little regard for the purported benefits of the
deal. AT&T had said the merger would have allowed it to expand the coverage
of its LTE network to 97 percent of the U.S. population, up from the 80 percent
it planned to cover without the addition of T-Mobile’s spectrum. But the FCC
said its review found that competitive pressures from Verizon Wireless would
force AT&T to build out its network to additional markets even in the
absence of the deal. 

AT&T
pledged to repatriate outsourced call center jobs if the deal went through, but
the FCC said the addition of those workers would have failed to offset other
job cuts stemming from the merger.

FCC
Chairman Julius Genachowski reiterated the agency’s reasons for opposing the
deal in a statement issued yesterday.  

“The FCC
is committed to ensuring a competitive mobile marketplace that drives
innovation and investment, creates jobs and benefits consumers,” he said.
“This deal would have done the opposite.”

The
FCC’s decision to send the T-Mobile transaction to an administrative judge
prompted AT&T to pull its merger application to avoid the hearing and focus
its efforts on reaching a settlement with the DOJ. 

But
those tactics found little support in court as Judge Ellen Huvelle, who oversaw
both the DOJ case and a separate lawsuit from Sprint against the merger,
expressed skepticism that “nothing had changed” in the wake of the
application withdrawal. Huvelle had ordered AT&T to make a decision by Jan.
12 on whether it would proceed with the T-Mobile deal.  

The cases
challenging the merger are now moot.  

Merger
opponents Free Press and Public Knowledge welcomed AT&T’s decision to give
up on the transaction. 

“This
deal would have only meant higher prices, fewer choices and tens of thousands
of lost American jobs,” Free Press President and CEO Craig Aaron said in a
statement. “Good riddance.” 

“In this
age of cynicism, it is important for the American people to see that Washington
does not always go to the highest bidder,” Public Knowledge legal director
Harold Feld said in a statement, referring to estimates that AT&T spent
$12.4 million on lobbying during the first nine months of 2011. AT&T is
also estimated to have spent $40 million on ads touting the T-Mobile deal
between May and October.