Dead Deal Walking! What's Next for AT&T?

You know that audacious $39 billion merger deal between AT&T (NYSE: T  ) and T-Mobile USA? Yeah, you can forget about it. The Wall Street Journal reports that talks meant to save the merger have "gone cold."

Ma Bell has faced huge hurdles to closing this deal from day one, including loud opposition from rival Sprint Nextel (NYSE: S  ) , a lawsuit from the Department of Justice, and a rarely used procedural weapon in the FCC arsenal. There's a $4 billion cancellation fee to keep the fires under AT&T burning, though about half of that seems to go away thanks to tax effects -- maybe Uncle Sam should have supported this deal all along in order to stop $2 billion of lost tax revenues?

The last Hail Mary play involved trying to sell off some of T-Mobile's assets to wireless rivals such as Leap Wireless (Nasdaq: LEAP  ) , MetroPCS Communications (Nasdaq: PCS  ) , and even mercurial satellite TV operator DISH Network. That way, AT&T's already huge shadow over the wireless sector wouldn't grow uncomfortably gigantic. The government might be able to stomach a structure like that.

But the keyword here is might. Leap was reportedly the most serious asset buyer, but backed away from the table "amid concern that even with such sales, the deal was unlikely to win over the Justice Department."

What's Plan B?
So it's back to the lab again. Verizon (NYSE: VZ  ) is dealing with its own spectrum crunch by buying radio wave licenses from a bushel of cable TV companies. I find delicious irony in the $3.9 billion combined price tag for these Verizon deals -- about equal to AT&T's breakup fees that involve losing spectrum to the jilted takeover target.

Go big or go home, they say. Ma Bell sure went big, and now goes home with her tail between her legs. The company could follow Verizon's lead and try to shake out licenses from non-telecoms who don't know what to do with theirs, or perhaps go on a less splashy acquisition spree among regional and rural telecoms -- Cincinnati Bell or Alaska Communications Systems (Nasdaq: ALSK  ) , anyone?

But those strategies would largely miss the true American metropolises by a country mile, and thus do little to improve AT&T's big-city services.

Oh yeah? Got any better ideas, Mr. Smartypants?
Sure. If I ran the show at AT&T, I'd tap a major infrastructure hardware player for a joint research venture, and then pour billions of research dollars into reaching true 4G (and then 5G) performance before anyone else. That way, the company could truly create American jobs and a very real business advantage, all without raising the bile of regulators. That proposed $39 billion deal is about 11 times Alcatel-Lucent's (NYSE: ALU  ) annual R&D budget, for example. If nothing else, the venture could raise billions by selling the fruits of their labor around the industry -- and the world.

I'm not holding my breath for a truly innovative move like that, of course. CEO Randall Stephenson would be railroaded out of the AT&T boardroom covered in tar and feathers for even suggesting such a thing. Instead, we'll see Ma Bell opening its checkbook for some other spectrum-rich takeover that doesn't require any fresh thinking.

AT&T may not be the most innovative knife in the drawer, but nearly 100 million wireless subscribers keep the cash flows healthy and dividends rock-solid. Check out the details of 11 never-say-die dividend ideas -- including AT&T.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 19, 2011, at 3:16 PM, DCMAKER wrote:

    5G??? lol that would be pointless true 4G is ridiculous and will not be reached for a good decade at least I bet. 4G speeds is 1Gbps standing and 100Mbps moving.....on a cell phone....5G? Maybe you should think and read a wiki article first before you post on technology.

  • Report this Comment On December 19, 2011, at 5:11 PM, TMFZahrim wrote:

    Yeah. On that note, 3G was preposterously fast five years ago, 640kB memory should be enough for everyone, and there's a global market for about five computers. These things move faster than you seem to realize, Dcmaker.

    Also, AT&T has now officially ended this deal:


Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1744999, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:55:02 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,185.16 -37.87 -0.21%
S&P 500 2,145.38 -5.95 -0.28%
NASD 5,287.38 -22.45 -0.42%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 1:39 PM
T $36.76 Down -0.11 -0.28%
AT and T CAPS Rating: ****
ALSK $1.65 Up +0.01 +0.30%
Alaska Communicati… CAPS Rating: ***
ALU.DL $0.00 Down +0.00 +0.00%
Alcatel-Lucent CAPS Rating: ****
LEAP.DL $0.00 Down +0.00 +0.00%
Leap Wireless Inte… CAPS Rating: *
S $6.43 Down -0.49 -7.12%
Sprint CAPS Rating: **
VZ $48.04 Down -0.17 -0.36%
Verizon Communicat… CAPS Rating: ****