Per the terms of the deal, AT&T will take a $4 billion charge for failing to finalize the merger.
Earlier in the year, the U.S. Department of Justice (DoJ) moved to block the deal. The DoJ stated that if the deal had gone through, it would be a sharp blow to the competitiveness of the industry.
A combined AT&T/T-Mobile entity would take in roughly 75% of the revenue of the industry. The monster entity could then push rivals like Sprint (S) out of business while making life extremely difficult for Verizon Wireless (VZ). Ultimately, the lack of competition could harm consumers who may have to fork over more cash for their mobile phone bills.
Especially Sprint’s shares rallied in the wake of the announcement that the deal was getting called off. Perhaps traders were pricing in less of a possibility that a combined T-Mobile/AT&T would pummel Sprint’s business.
AT&T attempted to persuade the administration that a deal would be a net benefit, as it would increase employment in the U.S. by creating jobs. There were even some rumblings that AT&T would agree to return a call center (with its few thousand jobs) to the U.S. if legal approval was granted.
Unfortunately for the company, the administration did not buy the argument.
Presumably, a merger would reduce the number of jobs, as the combined businesses could phase out many redundant employees.
Still, the lack of a merger leaves AT&T hungry for one resource it cannot easily acquire: spectrum.
As the amount of data used by its subscribers increases, the mobile carriers must likewise increase their amount of spectrum. As AT&T’s customer base increasingly upgrades to smartphones with internet data connections, their demand for spectrum increases.
The T-Mobile deal would have given AT&T more spectrum. Now that the possibility of that deal is all but gone, AT&T will have to look elsewhere.
Some possible partners for a deal to give AT&T more spectrum include Dish Network (DISH) and Clearwire (CLWR). Both are sitting on a relatively large amount of spectrum, although Clearwire has a close relationship with AT&T’s rival Sprint.
Will AT&T move to acquire Dish Network? The satellite provider currently has a market cap of just over $11 billion (significantly less than the $40 billion for T-Mobile) and the spectrum AT&T craves.
Also, AT&T has entered the cable business in recent years with its U-verse program. It would be interesting to see what kind of synergies would exist between U-verse and Dish Network’s satellite TV service.
Traders may have anticipated some hypothetical deal there, as Dish Network rallied roughly 5% in pre-market trading on Tuesday, and gained even more during the market session.
At any rate, given current trends, it seems inevitable that AT&T will have to seek out spectrum from someone in the industry. Now that its plans for T-Mobile have been shot down, where will the company go?
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