AT&T (NYSE:T) finally pulled out of their bid for T-Mobile on Monday, ending months of intense lobbying with regulatory and government bodies opposing the deal.^[1] This came after reports that the company had stopped trying to find buyers for part of T-Mobile’s assets, realizing that the strategy would do little to appease anti-competitive concerns. AT&T was desperately pursuing the deal in order 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

The withdrawal puts Deutsche Telekom, T-Mobile’s parent company, in a bit of a quandary. It wants to exit the U.S. wireless market and has made it clear that it will not pump any more money into T-Mobile’s business. We expect that Deutsche Telekom will therefore look to either spin T-Mobile off in a public offering or break it up and auction off its assets to different companies in order to avoid regulatory issues.

AT&T’s Options Beyond T-Mobile

For AT&T, it’s back to the drawing board with respect to its spectrum needs. For a company the size of AT&T – along with Verizon, it controls almost 65% of the market – it’s going to be tough to go out and make another acquisition, particularly after this very public fiasco. Instead, the company should take a page from Verizon’s book and forge partnerships with companies that have unused spectrum, or just buy that spectrum from them outright. Buying unused spectrum will not create kind of regulatory upheaval that the T-Mobile deal did. In fact the FCC, which vehemently opposed the merger, has offered its support for AT&T’s proposed spectrum purchase from Qualcomm. AT&T needs additional spectrum to roll out its LTE network and address the needs of a growing smartphone customer base that demands higher speeds and less network congestion.

However, with Verizon swiftly snapping up unused spectrum, AT&T’s options outside T-Mobile are diminishing by the day. Verizon has purchased huge swathes of unused spectrum from Comcast, Time Warner Cable and Cox Communications. This will make available spectrum even rarer and more difficult to acquire.

Should AT&T have difficulty acquiring spectrum, the company may find it easier to forge partnerships with companies that have the spectrum it needs, which we discussed in our previous article AT&T Could Partner with Dish for Needed Spectrum if T-Mobile Deal Fails.

Our $38 price estimate for AT&T’s stock is about 30% above market price.

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