AT&T Hopes to Save T-Mobile Deal with Help from Leap Wireless

Posted by · November 29, 2011 11:00 am

Back in March, AT&T announced its planned merger with Deutsche Telekom-owned T-Mobile. However, since then the deal has encountered a significant amount of regulatory resistance, and understandably so. The prospect of merging the country’s No. 2 and No. 4 telecoms is no small matter. In fact, concerns over a potential duopoly between AT&T and Verizon are so serious that the Justice Department has already filed suit to prevent the deal from happening.

In light of such opposition, the companies actually withdrew their applications for the merger from the Federal Communications Commission. Nevertheless, AT&T refuses to give up without a fight.

According to a report in the New York Times this morning, AT&T has been working behind the scenes with “second-tier but growing wireless player” Leap Wireless to help relieve some of that pressure. If everything goes as planned, AT&T will sell Leap a “big piece” of the T-Mobile customer base and a portion of its wireless spectrum, turning Leap into the fourth largest-largest carrier literally overnight.

“So, selling to a competitor for a large sum is an attractive option,” observes VentureBeat’s Tom Cheredar, “while AT&T is interested in swallowing up T-Mobile to improve its wireless network infrastructure.”

According to an earlier report from Bloomberg, AT&T could be willing to sell as much as 40 percent of T-Mobile’s assets in order appease the Justice Department to the point of dropping the case and allowing the deal to move forward.

Even still, it probably won’t be that simple. Despite such a deal’s promise of creating a new No. 4 competitor in the wireless market, concerns of market domination by an AT&T-Verizon duopoly remain considerably strong. Sprint, Leap and MetroPCS lack the spectrum and capital to make legitimate competitors for such giant telecoms.

Nevertheless, this deal is not without promise of gain for those who insist upon pushing this deal forward despite the climate of general reluctance that continues to surround it. With advisers on both sides of the merger—including JPMorgan Chase, Citibank, and Morgan Stanley, among others—hoping to reap sizable monetary gains (for some, regardless of the deal’s success) and corporate attorneys raking in large hourly sums as long as the battle rages on, chances are this fight is far from over.