ATandT's T-Mobile Bid: Anatomy of a Failure

NEWS ANALYSIS: AT&T made a number of bad decisions in the nine months between the announcement of its planned T-Mobile acquisition before finally giving up. The root causes were simple: arrogance and hubris.

Nobody outside the executive suites at Deutsche Telekom and AT&T really knows what was promised early in 2011 when the management of the two telecommunications companies agreed that AT&T would buy T-Mobile USA.

Most likely, the AT&T executives did what they have done so often in the past, which is to say exactly what the other executives wanted to hear-that the acquisition of T-Mobile was a sure thing and that the $39 billion would be in Deutsche's hands by April.

The Deutsche executives probably believed them. After all, AT&T had millions of dollars in the bank, a string of successful acquisitions behind it and the political clout that was the stuff of legends. What Deutsche didn't know at the time is that those legends were of AT&T's own making. But just to make sure that Deutsche thought it was safe, AT&T promised the biggest break-up fee ever if the deal fell through.

Deutsche Telekom wanted to hear these words.

Despite the fact that T-Mobile USA was its most profitable foreign division, the company was in trouble. European Union courts had found that Deutsche was in violation of a number of laws, had not followed through on court-ordered changes and was racking up millions of Euros in fines. Worse, its other divisions were in disarray. Some of the European divisions of T-Mobile were losing money, and the only way that Deutsche was holding onto customers was because it was bundling a variety of landline and wireless services that made dropping wireless services difficult.

But Deutsche's disarray made the money even more attractive. The $39 billion was enough to solve all its problems. At least that was the thinking at the time. But by the time people got to take a look at the proposed acquisition, opposition started to grow, and it grew fast.

AT&T countered the growing opposition by public interest groups by doling out money to a wide variety of groups, regardless of whether they had anything to do with wireless communications, to write letters of support to the Federal Communications Commission.

Then AT&T did what AT&T has done in the past. It started to spread money around to politicians at every level to buy their support. The mayor of Tallahassee, Fla., got a sweet consulting deal. Several members of Congress got big donations to send a letter to President Obama

But by this time, the wheels had already come off, and the merger was on its way out. But instead of looking for a way to ease Justice Department concerns, AT&T launched a nearly nonstop series of television and radio commercials and newspaper ads touting how their planned merger would create nearly 100,000 new jobs.

AT&T used its influence, mostly with people in Washington D.C., to push the line that its jobs projections must be true.

How could someone make a statement so seemingly contrary to the truth otherwise? Every AT&T merger has resulted in massive job losses, and internal documents obtained by the FCC and the Justice Department confirmed that. Once again, AT&T was trying to get what it wanted using politics and money rather than by simply coming up with a plan that might work.

Then in November, the future began to be revealed, and it wasn't a future that AT&T wanted to see. Federal Communications Commission Chairman Julius Genachowski announced that he was proposing that the license-transfer application be sent to an administrative law judge, which is the FCC's way of killing it. Then, a few days later after AT&T and Deutsche withdrew their license application, the FCC released a damning staff report on the merger.

By this point, the merger was clearly in extremis, but rather than try to find a way to save the acquisition, AT&T issued a series of harshly worded attacks against the Justice Department and the FCC. By this point, Ellen Huvelle, the federal judge trying the antitrust lawsuit, was clearly skeptical of AT&T. She set a hearing to decide whether the lawsuit should even proceed.

By now, even AT&T could see that it was over, and along with Deutsche, cancelled the acquisition in a flurry of defiant statements.

AT&T, if it demonstrated nothing else, showed that you can't buy your way out of an antitrust lawsuit. The brash group of Texans that run the company found out that being brash may work in Dallas, but it doesn't help in Washington. But in the process, where AT&T could have made a series of choices, it invariably chose the wrong one.

The job numbers? Did the company really think no one would do the math?

The spectrum requirements? Didn't they realize that spectrum assignments were public records, and that eventually someone would notice that AT&T had the most?

Apparently, they didn't, or the executives that run AT&T thought money could smooth everything over. They couldn't, but in the process, they left a trail of broken promises and damaged companies.

Deutsche Telekom won't get its $39 billion, and in the meantime, its legal woes in Europe mount.

T-Mobile USA will get some badly needed spectrum and roaming agreements with AT&T, but DT still wants to dump the division so it can focus on saving itself. Will it go to Google? Or maybe Dish Network? Nobody knows.

And nobody knows what AT&T might try to do next. Some believe that the acquisition will come to life again if the Republican Party takes the White House in a year. Others suggest that Deutsche will simply shut down T-Mobile, but that seems unlikely considering its profitability. But right now, nobody knows, and that doesn't help anyone, including AT&T, whose stockholders must be wondering why all that money was wasted.