With T-Mobile, did AT&T fail to read the wireless tea leaves?

With T-Mobile, did AT&T fail to read the wireless tea leaves?

Summary: What was AT&T thinking? The U.S. federal government axed its bid to acquire T-Mobile on Monday, giving its rival wireless carrier a hefty consolation prize. Did it miscalculate?

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On Monday, AT&T dropped its $39 billion bid to acquire T-Mobile.

At first, it seemed inevitable. The second-largest U.S. carrier was coming off a record run after securing the Apple iPhone first for its network, and the fourth-largest U.S. carrier was smarting after each of its competitors gained access to Apple's popular device except for it. To boot, parent company Deutsche Telekom wanted a way out of the U.S. market. From 30,000 feet, the deal seemed all but done.

Except it wasn't. What became painfully clear in the last 24 hours is that AT&T didn't do its due diligence -- not in a legal sense, but of the common variety. From the beginning, consumers and industry analysts crowed about how the deal -- which would leave just three major wireless carriers in the very large U.S. -- would harm industry competition. But that wasn't what killed the deal -- the U.S. Federal Communications Commission and Department of Justice did.

That's precisely the problem. The AT&T folks involved with the deal clearly did not do enough legwork to understand that the federal government was determined not to let the deal through, at least not without drastic modification, from nearly the very beginning. Call it arrogance or mere ignorance, but AT&T clearly though it had this one in the bag -- or it would not have agreed to such a steep consolation prize ($3 billion and additional spectrum, among other savory items) with the competitor it so deeply wanted to acquire.

There will be much ink spilled about how this does and does not affect consumers, but the real story is how strongly AT&T swung -- and missed. During FarmVille game developer Zynga's initial public offering on Friday, I remarked to ZDNet editor-in-chief Larry Dignan about the lack of a share price "pop" after the stock debuted at $10 a share. (At the moment we spoke, it was hovering around $11.)

"That's a good thing," he replied. "It means they didn't get screwed out of a ton of money by their lawyers."

In other words, financial arrangements are at their best when neither party is surprised. If AT&T felt there was a good chance of the Feds axing its plans, it would have worked to negotiate a considerable reduction in T-Mobile's spoils for failure. Now, it's the only wireless carrier in the U.S. that's reeling: Verizon and Sprint didn't waste a year's worth of time and money with such distractions, and T-Mobile is compensated for it and then some.

Mergers and acquisitions are never straightforward, and this one proved to be a headache no matter which way you cut it. But in the end, I can't help but wonder: what was AT&T thinking?

Topics: AT&T, Mobility, Networking, Wi-Fi

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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  • And none of this would have helped

    those they are ultimately in business to serve, or supposed to serve. But it does serve the hot shots in the boardrooms and executive suites by giving them things to do to justify their ludicrously overblown salaries and perks. If not, they spend most of their time twirling their thumbs (well, beyond scheming up new shark attacks).<br><br>Predatory capitalism is little more than an expensive con game played over the peoples' heads, and is such a far throw from the original tenets of free enterprise as to be almost absurd.
    klumper
  • UGH

    Time for Obama to and his cronies to go!! let business do it's own thing!!!
    Hasam1991
    • RE: With T-Mobile, did AT&T fail to read the wireless tea leaves?

      @Hasam1991 Yay! More Standard Oil Trusts! More Railroad trusts! More sweatshops! More arsenic in the drinking water! More false advertising! More price fixing! More... forget the 1920s... you DID notice the Wall Street meltdown in 2008 that came from treating banks like casinos and imploding the economy, didn't you? You did see banks use lobbyists to get the law scrapped that kept them from becoming "too big to fail", didn't you? You did notice the ratings agencies rating bundles of mortgages with lots of "toxic" mortgages strewn in with AAA ratings, didn't you? You did see Wall Street create "side bets", aka derivatives, that were exempt from the oversight stocks require, didn't you? You did see banks sell the toxic mortgages with their AAA ratings then bet AGAINST them in the derivatives market, didn't you? And you conclude the problem is that we had TOO MUCH oversight? Just like here you conclude that letting AT&T buy T-Mobile, which would only raise prices on consumers through eliminating competition, would be a GOOD thing? For who besides the CEO and board of AT&T? Or, as I'm watching the GOP hold payroll tax cuts for working America and unemployment benefits and medicare payments to doctors hostage to get millionaires more tax breaks (and now an oil pipeline too), are CEOs and corporate boards the only people who count anymore?
      jgm@...
      • Time for a history lesson, I see.

        The 2008 banking meltdown was the direct result of government interference in the housing market. Because Democrats wanted to buy votes by guaranteeing a chicken in every pot. I mean, a home for every voter.
        baggins_z