AT&T Moves to Save Merger as T-Mobile Gets Dish Network Interest

AT&T T tipped its hand in a move telegraphing desperation when it said on Saturday that it is willing to sell assets it would acquire through the merger with T-Mobile in order to address antitrust concerns. The company has also moved to spin the merger as being in the interest of competition rather than against it, ensuring T-Mobile stays feasible in the face of current competitive challenges. AT&T says it would sell as much as 40 percent of assets it would get through T-Mobile, should the merger go through, so the resulting behemoth would not be as offensive to the antitrust sensitivities of the Department of Justice. The company's all-hands-on-deck approach to the antitrust front comes as it retracted on Tuesday the merger application in front of the Federal Communications Commission. The move comes as pundits and even AT&T itself had appeared to write things off, when it announced it would take a charge-off for a potential break-up fee with T-Mobile. The sale of the assets is by no means a quick fix, which documents the measure of desperation for AT&T. National carriers such as Verizon Wireless VZ and Sprint Nextel S would face similar antitrust hurdles as would-be feasible buyers for such spectrum assets. On the other hand, it would be doubtful that smaller regional carriers would have the wherewithal to take on such ownership. AT&T's desperation is not misplaced. The company needs the merger to gain strategically vital infrastructure to boost its nationwide coverage. Acquiring the only other major GSM carrier in the U.S. would result in a bigger combined company than Verizon (the current number one), an edge AT&T needs desperately as its perceived quality is under attack and as its customer base hemorrhages carriers newly endowed with the iPhone—an exclusive AT&T staple until early 2010. As part of its PR push on Saturday, AT&T was steering away from its own current situation by spinning the merger as vital to the smaller participant. According to AT&T, it is T-Mobile that would stand to gain the most from a united carrier, given that it is left starving for investment from it current parent, Deutsche Telekom, and has no coherent 4G strategy going into an increasingly competitive market. This narrative appears to exaggerate facts. It is true that T-Mobile is a distant fourth in terms of size among national carriers, something that certainly gets in the way of offering the latest and greatest to customers. However, look at T-Mobile and you would be forgiven for thinking the company in front of you does not think it is anywhere near facing impending doom. For starters, it has been a thorn on the side of AT&T, of all carriers, as it has become a home to the bigger carrier's expatriated subscribers in droves. With the simple switch of a SIM card, people are able to enable their current mobiles handsets on T-Mobile's cheaper and better-termed plans, on many occasions with no contracts. As T-Mobile stated last summer, it already hosts over one million iPhone handsets in its network, without ever having a deal in place with Apple AAPL. Most of these come straight out of AT&T, with the balance being iPhones purchased on the second-hand markets (a number bound to increase with the release of new iPhones in October). AT&T is far from being the only carrier threatened by T-Mobile's aggressive push on the lower end of the industry. Number Four has slapped a glove in the face of the bigger carriers with two particularly disruptive, contract-free 4G plans. For $30 per month, it offers either 1,500 in combined minutes and text plus 30MB of data, or 100 voice minutes with unlimited text and 5GB of data. Neither of ATT, Verizon or Sprint can match these currently. As much as AT&T would like you to pity an ex-merger T-Mobile, the smaller carrier will likely be left less feeble or resource-less with about $6 billion in cash and spectrum goodies, which AT&T is on the hook for, courtesy of its optimism at the merger announcement in March. In fact, it is likely T-Mobile will turn itself into a nice acquisition target for alternative suitors. It has been said Sprint Nextel is a possibility, although the fit is less strategic given the different network technologies (Sprint uses CDMA). A Sprint T-Mobile acquisition would thus fall on the lower side of the $39 billion offered by AT&T. Also, regulatory concerns would likely stand on this merger as well, on antitrust and job cut grounds (the latter sounding so much more sinister than the “job savings” in shareholder speak). A far more interesting non-AT&T prospect for T-Mobile is one that would see a new entrant in the Mobile communications industry. Dish Network DISH has come up as having interest in merging spectrum with T-Mobile to create a new 4G operator in the U.S. The Blog of Legal Times, which covers lobbying activities in the nation's capital, reports that Dish Network is involved in the effort to thwart the AT&T - T-Mobile merger. Through its spokesperson, Dish Network has said the merger “would harm competition and consumers by, among other things, potentially discourage DISH Network from entering the market to provide mobile broadband.” Depending on whether you land on the merger happening or not, substantial market moves are likely to come into view. Stocks have already shown a propensity for the upside this morning. T is currently trading at $27.96, up nearly 2 percent since open. DISH is up by a similar 2.5 percent at $24.42 per share so far in the session whereas VZ and S are up 2.8 and 6.3 percent each, trading at $36.34 and $2.53 per share respectively.