AT&T Merger With T-Mobile Nears Collapse

AT&T and T-Mobile USA have withdrawn their merger application with the FCC, the companies announced this morning, a move that could spell the end of the proposed mega-merger.

The deal isn't officially dead, yet. The two companies stated that they intend to go forward with the $39 billion merger after taking on an federal antitrust lawsuit. In the meantime, AT&T will still have to cough up $4 billion "to reflect the potential breakup fees that AT&T must pay to Deutsche Telekom if the deal does not go through," the New York Times reported.

Like everything else in Washington, the deal's prospects come down in part to a debate over jobs. AT&T claims the deal would not hurt competition or hurt U.S.-based employment between the companies. The Justice Department and the FCC have disagreed. In August, Justice filed suit to block AT&T's takeover of the smaller T-Mobile. This week, FCC Chairman Julius Genachowski expressed doubts about the deal and took stops to send the case to an administrative judge to block it. As with any multi-billion-dollar merger between large companies, there is concern that a oligopoly in telecom will hurt consumers with higher prices.

In his analysis of the merger for The Atlantic in August, former FCC chief counsel Bruce Gottlieb wrote that the bigger picture is about not only growth and jobs, but also the battle over commercial spectrum to meet the explosive demand for mobile broadband. T-Mobile suffers from the worst spectrum shortage of the major carriers, while AT&T sees a chance to move ahead of Verizon with 39% of market share:

The looming fight over wireless competition will be about how to dole out spectrum that is being repurposed from legacy uses like TV broadcasting to more modern uses like iPhones, iPads, and the like. Will it go to whomever can pay the most? Or will there be a finger on the scale for smaller providers, in the hopes of supporting competition?

The answer will matter tremendously, because all carriers are facing spectrum scarcity as next-generation applications require ever faster speeds. T-Mobile is in far and away the worst spectrum position of all the major carriers -- indeed, that is one major reason it agreed to be acquired by AT&T.

There is flip-side. Although Gottlieb expressed surprise that the U.S. government would flex its regulatory muscle in telecom (in virtually every telecom competition case, the big corporations have won out over the regulatory worrywarts), Atlantic contributor Michael Mandel had a very different take on the FCC and the Justice Department coming down hard on the merger. In his mind, the company should be rewarded for its domestic investment with a yuletide gift of an easy merger:

AT&T is the company which is putting the most money into the U.S ... almost $20 billion in capital spending in 2010.  AT&T is also planning to bring back call center jobs from overseas. AT&T is also getting sued by the Justice Department to block the merger with T-Mobile.

Without taking sides, let me try to tee-up this debate over competition and jobs. On the one hand, U.S. regulators suspect that a $39 billion merger will create redundancies in the two companies that will result in short-term layoffs. That sounds reasonable. But in the long-term, what kind of signal is the U.S. government sending to companies that invest domestically, try to grow, and get stiff-armed by the Justice Department? It might not be the kind of move that makes large corporations excited about continuing to invest domestically.