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AT&T faces legal delays over T-Mobile USA acquisition

AT&T faces a week-long delay for its US$39 billion deal to buy T-Mobile USA, as a district judge prepares to decide whether the antitrust lawsuit against the merger will go ahead and the companies look to their alternatives should the deal fail.

At a hearing on Friday last week, US district judge Ellen Huvelle stated she would consider delaying the case brought by the justice department against the deal, which had been set for February next year, dashing AT&T’s hopes of a quick victory.

The Justice Department may also decide to seek to withdraw the lawsuit, arguing that AT&T cannot close its purchase in any case without the blessing of the U.S. Federal Communications Commission (FCC). The two sides are expected to file their individual arguments this week, with a hearing set for Thursday to consider how to proceed.

AT&T had been hoping to succeed in court, using a win in February to put pressure on the FCC. AT&T last month withdrew its FCC application for the transfer of spectrum licenses, after the FCC indicated that it was strongly opposed to a deal it claimed was not in the public interest. The move made possible for the department to argue that the antitrust case is now moot, or lacking urgency.

Wayne Watts, AT&T’s general counsel, stated: “We are anxious to bring to the U.S. consumer the benefits of increased wireless network capacity and efficiencies that can only arise from combining the resources of AT&T and T-Mobile USA. We are eager to present our case in court.”

The latest move by the department, described by one expert as “tactical maneuvering”, could leave AT&T in a mess. If the district judge rules against them this week, the telecom companies may have to resign themselves to a long legal uncertainty, throwing into doubt a contractual deadline of next September to complete the merger. Worse still, a withdrawal of the department’s suit could leave the deal completely in staemate.

In the latter scenario, people familiar with the matter acclaimed the company’s options were limited. One possibility would be to file for a declaratory judgment to force the legal issue, effectively asking a court to rule that the government is wrong in its argument. Such a legal move is rare and successful cases are virtually non-existent, said lawyers.

Another possible course is also unappetizing. The companies could recast their deal, resubmitting it to the FCC and effectively restarting the legal process of seeking government approval.

Insiders to the deal privately admit that past solutions considered, for example a sizeable asset sale to a smaller competitor like Leap or MetroPCS, now look unlikely to suffice.

Another possible option would be for the two companies to restructure the deal more dramatically. The two companies could pursue a merger similar to that agreed between France Telecom’s Orange and Deutsche Telekom’s T-Mobile operations in the UK – a split agreement that allowed both parties to pool their network and customers while cutting costs on marketing, capital expenditure and IT.

Antitrust experts believed that the industry analysis around the AT&T case has grown more and more complicated as time has progressed. Verizon Wireless recently agreed to acquire a wide variety of valuable spectrum for US$3.6 billion from a joint venture of three cable operators, heralding a “complete reordering of the competitive universe”, said by analysts at Bernstein, and removing one fallback alternative for T-Mobile USA.

The Verizon purchase, which must also be reviewed, could leave T-Mobile USA as a more impoverished player should the AT&T deal goes bust, potentially undermining the government’s case that the company is a scrappy competitor, important for maintaining a competitive dynamic in the telecom industry.