AT&T (NYSE:T) may have shelved its plans of selling off a part of T-Mobile’s assets as a way of gaining regulatory approval, according to a report in Wall Street Journal.^[1] The companies may instead look for alternatives such as a joint venture intended at sharing network technology or AT&T buying out a controlling stake in T-Mobile. AT&T is desperately pursuing a deal with T-Mobile to secure the additional spectrum it says it needs to compete with Verizon (NYSE:VZ) and Sprint (NYSE:S) in the wireless market.

See our complete analysis for AT&T stock here

AT&T was in talks with Leap Wireless earlier to divest almost 30% of T-Mobile’s assets.^[1] However, for reasons highlighted earlier in our note, AT&T’s Leap Deal May Not Be Enough to Salvage T-Mobile Merger, we believe the company is doing the right thing by not wasting time on a deal that neither addresses the regulators’ anti-competitive concerns nor helps Leap compete better.

The second largest wireless carrier has now realized that its current attempts at securing the T-Mobile deal are not going to help, signs of which became clear after they asked the District Court Judge to stay any further hearings on the case until January 18th, 2012 in order to “evaluate all options”. It seems their best bet now is to abandon the bigger deal and instead try to salvage the deal in some reduced form or look for spectrum elsewhere. (see AT&T’s T-Mobile Deal Almost Dead, Spectrum Hunt to Continue)

Additional spectrum is necessary for AT&T to hold on to its market share, given the needs of a growing smartphone customer base that requires higher speeds and less congestion on its network. Also, as competitors jump on the LTE bandwagon, AT&T will also need more spectrum to put its own LTE plans to action without compromising its existing network.

However, with Verizon swiftly snapping up unused spectrum from cable companies, AT&T’s options outside T-Mobile are getting fewer by the day. In such a scenario, AT&T may consider partnering with satellite TV provider, Dish, to put its recently acquired spectrum to use.

Dish recently announced that its spectrum was not up for sale and that it intended to use it to roll out its own wireless network. AT&T may not be able to buy Dish’s spectrum but it can still partner with Dish to help launch their joint wireless service.

Although Dish’s current spectrum holdings may not be of a scale large enough to satisfy all of AT&T’s needs, it may still provide a stopgap solution for AT&T in the shorter term. It will also help AT&T market its services to Dish’s current customers and grow its subscriber base.

Our $38 price estimate for AT&T stock is about 30% above market price.

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