AT&T drops T-Mobile USA bid

AT&T has dropped its controversial $39 billion bid for Deutsche Telekom's US wireless unit, bowing to fierce regulatory opposition and leaving both companies scrambling for alternatives.

AT&T will have to find another way to address its shortage of wireless airwaves while Deutsche Telekom has to go back to the drawing board on what to do with T-Mobile USA, the struggling US business it had desperately wanted to shed.

The failure of the deal, which was seen as a tough sell from the very start, may call AT&T chief executive Randall Stephenson's judgment into question as he was clearly surprised by the strength of regulatory opposition.

AT&T, which would have vaulted to first place in the US market if the deal succeeded, was so sure it would win approval that it even promised Deutsche Telekom a record break-up package that will cost it an eye-popping $4 billion this quarter.

Mr Stephenson was caught red faced after promoting the deal on TV the same day the US Justice Department sued to block it. From August to late November many experts were puzzled by the companies' optimism they would win over the regulators.

"It was definitely a miscalculation (by AT&T)," said Steve Clement, an analyst at Pacific Crest Securities.

"I don't know that it's such a big deal to the extent that you're going to have people looking for a change of management (at AT&T). But they definitely miscalculated what they would be able to push through to regulators," he said.

As for Deutsche Telekom chief executive Rene Obermann, the break-up package will not be enough to soften the blow of losing a deal that has been described as "almost a dream come true" for the German telephone company. Now Mr Obermann will have to either invest billions more in the US market or find a new way to exit the country.

"There are very few occasions when you are forced to walk away from the table with $4 billion in your pocket and still feel like you've just been short-changed," said Thomas Wehmeier of research firm Informa Telecoms & Media.

AT&T's Mr Stephenson said the company would continue to invest as it looks to boost its capacity, but he also urged policy-makers to make additional spectrum available.

Reuters