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AT&T Needs to Build a T-Mobile

Stocks in this article: T VZ LEAP PCS

NEW YORK ( TheStreet) -- New reports that AT&T (T) is working an "11th-hour deal" to revive a $39 billion merger with T-Mobile USA beg the question: Why the second largest wireless carrier in the U.S. waited till a late deal making hour to alleviate antitrust concerns?

The specter of a blockage from antitrust regulators has loomed large since the outset of the deal. If AT&T were to fail it would have to pay $3 billion cash and $3 billion spectrum assets to T-Mobile, according to deal terms. Additionally, if asset divestitures to alleviate antitrust issues reach $7.8 billion, the price of the merger - currently the largest of the year - could be renegotiated entirely. With Monday's reports by the New York Times that those involved in merger negotiations gave the deal as low as a 60% chance of approval, the surprise is that scattered reports of potential divestitures only started to seep out after the U.S. Department of Justice blocked the deal in August. Why wasn't AT&T more prepared?

The FCC joins its opposition to AT&T's $39 billion T-Mobile merger.

New reports that AT&T will look to divest up to 50% of T-Mobile to competitors like Leap Wireless (LEAP) and MetroPCS (PCS) from Bloomberg and reports by the Wall Street Journal in September that the company had hired Bank of America (BAC) to conduct up to $8 billion in asset sales such as 4G spectrum, signal grave miscalculations in AT&T's merger. While AT&T lawyer's highlighted the competitiveness of regional wireless markets when announcing the merger, in its August antitrust suit, the DoJ tested the merger on national grounds, accounting for the fees regional providers pay to connect with the national networks of AT&T and Verizon.

"I think that it is incredible that the experts would say there was only a 40% chance of failure," said Eleanor M. Fox a professor of antitrust law at NYU Law School when asked if AT&T had been prepared to make divestitures to remedy antitrust issues when cutting the deal. Fox now now characterizes the merger as "extremely unlikely" and adds, "this merger is so anticompetitive in its essence, it's not terribly fruitful to try to get antitrust approvals through spins."

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