Facing a Justice Department lawsuit and opposition from the Federal Communications Commission, AT&T announced on Monday that it is giving up on its effort to buy T-Mobile USA for $39 billion, a deal that would have created a telecommunications giant.
The federal government and advocacy groups immediately celebrated --including the Justice Department, which had sued to block the merger.
"Consumers won today," Acting Assistant Attorney General for the Antitrust Division Sharis Pozen said in a statement on Monday evening. "Had AT&T acquired T-Mobile, consumers in the wireless marketplace would have faced higher prices and reduced innovation."
By abandoning the merger, AT&T will owe T-Mobile's parent company, Deutsche Telekom, a $4 billion break-up fee.
AT&T had painted the proposed merger as a way to help provide more spectrum and other wireless resources.
"The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage," the company said in a statement. "In the absence of such steps, customers will be harmed and needed investment will be stifled."
But federal regulators charged that the $39 billion deal would have harmed consumers and decreased competition.
"The record clearly shows that—in no uncertain terms—this merger would result in a massive loss of U.S. jobs and investment," the FCC said last month when it announced its opposition to the deal.
In announcing the end of the merger process, AT&T CEO Randall Stephenson said federal authorities had meddled with the free market.
“The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to customer needs and market forces," he said in a statement.
AT&T withdrew its application at the FCC after Chairman Julius Genachowski asked the commission to vote to block the transfer of T-Mobile's spectrum licenses to AT&T. The company accused FCC staff of conducting an “obviously one-sided” analysis of the merger.
In August, the Justice Department filed a lawsuit to block the merger, saying it would mean "higher prices, fewer choices and lower quality products for mobile wireless services."
AT&T had vowed to fight the lawsuit, but the FCC decision effectively meant the end of the merger. The Justice Department moved to end the court battle after the FCC decided to consider blocking the deal.
The decision by AT&T to end the months-long fight marks a remarkable turn of fortune for the telecom giant, which wields formidable legal and lobbying resources in Washington. Stephenson said the company will seek other ways to increase its network capacity.
“AT&T will continue to be aggressive in leading the mobile Internet revolution,” he said in his statement. Stephenson urged the FCC to quickly approve AT&T's bid to buy spectrum from Qualcomm.
Consumer groups were quick to claim victory.
"This deal has been as good as dead for months because the facts never matched AT&T's fabrications about the benefits of the merger," Free Press President Craig Aaron said in a statement. "The American public can breathe a sigh of relief that this time the public interest trumped AT&T's self-serving attempt to kill off what little competition remains in the wireless market."
AT&T announced its intention to buy T-Mobile in March. Deutsche Telekom saw the deal as a way to exit the U.S. market, where it has lost 850,000 customers this year.
As the second-largest wireless provider in the United States, AT&T has 98 million subscriptions. T-Mobile is the fourth largest wireless carrier, with more than 33 million subscriptions. Together, the two companies would have formed the largest wireless company in the U.S.
Not everyone was happy on Monday. "Nearly two years ago, the Obama FCC declared a spectrum crisis. But Congress has refused to authorize the agency to reallocate underused spectrum from television broadcasters and government agencies--which would take years anyway," the pro-merger think-tank TechFreedom said in a statement.
"The AT&T/T-Mobile merger would have eased this crisis and accelerated the deployment of next-generation 4G networks. Yet the government killed the deal based on formalistic and outdated measures of market concentration--even though the FCC's own data show dynamic competition, falling prices, and new entry."