AT&T’s Pulling Out All the Stops to Get DoJ Approval

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AT&T (NYSE:T) may be considering a bigger sale of T-Mobile’s assets than had been initially anticipated in a bid to assuage the Department of Justice’s (DoJ) concerns and salvage the $39 billion deal, as the company looks to pacify the DoJ before the court hearing in February. [1] Quoting people familiar with the matter, Bloomberg reported that AT&T may be readying a proposal to divest as much as 40% of T-Mobile’s business in order to address the Justice Department’s concerns. The DOJ had sued to block the deal on August 31 as it was concerned that if this merger goes through, only three companies AT&T, Verizon (NYSE:VZ) and Sprint (NYSE:S) would control 90% of the U.S. wireless market and make the telecom industry even more concentrated, resulting in lower competition and higher prices for consumers.

Our $38 price estimate for AT&T stock is about 38% above market price.

See our complete analysis for AT&T stock here

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AT&T in desperate need of additional spectrum

This is not the first time AT&T has thought of such a proposal. However, earlier reports said that the company was planning on selling only 25% of T-Mobile’s assets. [2] Increasing opposition from other regulatory bodies such as the FCC, which recently asked for the deal to be referred to an administrative law judge for a court hearing, has led AT&T to withdraw its application from the FCC temporarily and consider a bigger asset sale to win DoJ’s approval first before reapplying for merger again with the FCC. In spite of opposition from all quarters, AT&T hasn’t given up on the deal and this shows just how desperate AT&T is for the deal to go through.

This desperation stems mostly from the additional spectrum that the company will acquire should the deal go through, which will help it not only expand capacity and improve service but also give it a competitive edge over Verizon. Since the company has its vested interests mostly in T-Mobile’s spectrum, the bigger asset sale is likely to include a greater proportion of customers than spectrum. [1] If the deal goes through, it will vault AT&T ahead of Verizon as the largest wireless carrier in the U.S. market.

Proposal may not address all of DoJ’s concerns

AT&T has consistently argued that the U.S. wireless industry will remain competitive if the T-Mobile purchase were to gain federal approval. In expanding its 4G LTE network and merging the two companies’ wireless networks, AT&T has maintained that the deal would create jobs and generate economic growth.

However, we have serious doubts about the likelihood of the DoJ accepting such a settlement because it doesn’t address the government’s concern of preserving a strong fourth competitor in the wireless market. Also, the company will have to divest T-Mobile’s both national and regional assets. While regional assets may have many takers, the only logical buyers for national assets would be Verizon and Sprint, but a purchase by either company (particularly Verizon) could raise more antitrust concerns. (see AT&T’s Plan to Save T-Mobile Deal May Not Be Enough)

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Notes:
  1. AT&T Said to Plan Proposing Bigger Asset Sales to Save T-Mobile Takeover, Bloomberg, November 26th, 2011 [] []
  2. AT&T prepares two-track plan to save T-Mobile deal, Reuters, September 2nd, 2011 []