ATandT, Deutsche Telekom Drop FCC License Transfer Application

News Analysis: Both companies say they will pursue the merger, but AT&T prepares to take $4 billion charge to pay T-Mobile for failure to get regulatory approval for the $39 billion acquisition before the deadline specified in the buyout agreement.

Deutsche Telekom and AT&T announced early Nov. 24 that the two companies willdrop their applications to transfer licenses for wireless spectrum, which are essential for AT&T to complete the $39 billion buyout of U.S. wireless company T-Mobile.

The move comes two days after the Federal Communications Commission announced that it wasreferring the application to an administrative law judge because of doubts about the factual grounding of AT&T's application and doubts that the transfer would be in the public interest.

The announcement came at approximately 2:30 a.m. EST Thanksgiving morning, a major holiday in the United States, in what some observers said was an obvious attempt to escape attention by the news media. However, Thursday wasn't a holiday in Germany, andDeutsche Telekom announced the decision at the beginning of the workday there.

In addition to withdrawing its applications before the FCC, AT&T also announced that it expects to recognize a pretax accounting charge of $4 billion ($3 billion in cash and $1 billion in spectrum) for the contractual breakup fees due because it now appears inevitable that the parties will fail to get regulatory approval for the merger by the end of September 2012.

While both DT and AT&T say they plan to pursue the merger and fight the antitrust suit filed by the U.S. Department of Justice, the withdrawal of the license applications raises several questions. The most obvious is whether or not there is a need for an expedited hearing with the DOJ, now that there's no obvious need to rush, since the merger would be ineffective unless the license transfer were to take place. The antitrust trial was placed on an expedited track at AT&T's request. This means that the current calendar for the antitrust hearings could be revised.

The withdrawal of the license application also means that it's virtually impossible for the AT&T, T-Mobile merger to take place within the time limit set in the merger agreement, meaning that AT&T would have little choice but to pay a penalty to T-Mobile. The announcement that it would be taking a pretax accounting charge means that AT&T sees a likelihood of less than 20 percent that the merger will be successful within the time limits. This announcement is required by GATT (General Agreement on Tariffs and Trade).

"The nail is in the coffin," said Andrew Jay Schwartzman, senior vice president and policy director of the Media Access Project, one of the organizations that have been fighting the proposed merger. Schwartzman said that the companies chose to withdraw their applications now so that the FCC won't move forward with its hearing designation order that would force a hearing before an administrative law judge. He said that before AT&T and T-Mobile refile any license applications, they'll have to reformulate the deal to make it acceptable to the FCC and address the public interest concerns.

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...