Asset Sale May Be Next for AT&T
Rethink possible. That is both AT&T’s marketing slogan and an apt summary of the challenges it faces now that its planned $39 billion purchase of T-Mobile USA looks increasingly doubtful.
AT&T and T-Mobile’s corporate parent, Deutsche Telekom, acknowledged that the deal was in troublein a Thanksgiving Day announcement. The companies said they had withdrawn, for now, their application to the Federal Communications Commission to join their cellphone operations. They also said that AT&T would take a $4 billion charge against earnings — the amount in breakup fees owed to Deutsche Telekom if the deal is scrapped.
The companies portrayed the withdrawal of the F.C.C. application as a tactical move, after the commission chairman said earlier in the week that he would move to oppose the deal. The Justice Department filed an antitrust suit to block the merger in August.
Focusing on the antitrust trial, scheduled for February, the companies explained, would now be the first step. They vowed to continue to pursue their bold plan to combine the second- and fourth-largest cellphone carriers in the United States.
But the companies’ ambitions must be scaled back if they want any chance at a deal, analysts say. To address the objections of the Justice Department and F.C.C. that a merger would be anticompetitive, AT&T could agree to sell off 40 percent or so T-Mobile’s assets to wireless rivals, they say.
The policy goal, analysts say, would be to strengthen wireless competitors beyond the big two, Verizon Wireless and AT&T. So sales of mobile spectrum, cell towers and customers could not be made to Verizon , but to others, like Sprint and MetroPCS , the third- and fifth-largest carriers.
Or perhaps assets could be sold to a well-heeled foreign company that, unlike Deutsche Telekom, is increasing its investment in the United States: América Móvil, headed by the Mexican billionaire Carlos Slim Helú. Mr. Slim is a major shareholder in The New York Times Company.
Creative deal-making, analysts note, would be required to forge alliances and supply cash for spinoff purchases. The list of potential participants, they say, includes private equity firms, like SilverLake Partners, and cable companies, like Comcast and Time Warner , which own spectrum and whose Wi-Fi networks can work in tandem with cell networks.
Each of the options would present obstacles. And it is not clear that AT&T would be interested in a drastically scaled-down deal. Yet the company has consistently argued that its main motivation for pursuing T-Mobile is to acquire scarce wireless spectrum, so AT&T can quickly build out high-speed, next-generation network capacity to improve its service.
“If that is its goal, then AT&T has to explore ways to salvage as much spectrum out of the deal as it can,” said Kevin Werbach, an associate professor at the Wharton School of the University of Pennsylvania and a former technology policy official at the F.C.C.
To sell off 40 percent of T-Mobile’s assets, AT&T would most likely have to make peace with rivals who have opposed the merger, like Sprint and MetroPCS, and offer these carriers favorable terms, said Kevin Smithen, an analyst at Macquarie Securities.
“The issue for AT&T is whether gaining some market share and spectrum is worth handing over some of T-Mobile’s assets to the struggling third and fifth carriers,” Mr. Smithen said.
Private equity firms, analysts say, would mainly be interested in providing financing for others to buy spectrum assets, or in buying some assets and then reselling them. Such investment funds, they add, are not in the business of running companies.
América Móvil in Mexico is a candidate to buy T-Mobile assets, according to Berge Ayvazian, a telecommunications consultant. The company’s TracFone unit, which sells a flat-rate, prepaid service called Straight Talk, has been rapidly adding subscribers in the United States.
“The result,” Mr. Ayvazian said, “would be a healthy company that is growing around the world and in the United States, becoming the No. 4 competitor in this market.”
But other analysts noted that América Móvil, with its prepaid service, is a very different business than the traditional model of signing up subscribers on two-year contracts.
The cable television companies, analysts say, could well seek advantage in any asset sales, as they expand into phone and wireless service. Cable operators, through a joint venture called SpectrumCo, spent $2.37 billion for 137 wireless spectrum licenses across the country in an F.C.C. auction in 2006. Comcast and Time Warner now own more than 90 percent of SpectrumCo.
The cable companies’ short-range Wi-Fi networks are widely used by smartphones, along with conventional mobile phone networks. Innovators, like Republic Wireless, are providing low-cost mobile service that relies largely on harvesting Wi-Fi signals.
The cable companies may see opportunity in investing further, perhaps combining new assets with the spectrum they already hold, analysts say. One alternative, suggests a recent report by the investment research firm Sanford C. Bernstein, would be for T-Mobile to forge an alliance with SpectrumCo, and in a separate company that would later sell shares in a public offering. That path assumes the AT&T deal collapses altogether.
If AT&T proposes selling off a portion of T-Mobile’s assets, the plan would still have to be approved by regulators. And AT&T, it seems, badly miscalculated the degree of the government’s antitrust concerns.
In court in February, antitrust experts say, AT&T will likely rebut the Justice Department’s complaint with a few central arguments. Telecommunications networks, they can argue, are naturally concentrated markets because of high investment costs, and wireless prices have declined after past mergers.
Indeed, a recent study by Columbia University’s Institute for Tele-Information found that even if AT&T acquired T-Mobile, the level of concentration in the wireless market in the United States would be about the international average.
Still, in its suit, the Justice Department concluded that the merger would undermine competition nationally and in nearly all the 100 local markets it measured.
“Justice is saying that this merger is more of a game changer than any before,” said Andrew I. Gavil, a professor at the Howard University law school. “The way the government has presented its objection, looking at all these local markets, makes it very difficult to imagine a formula that would allow AT&T to go forward.”