AT&T and Deutsche Telekom discuss a plan B?

The Wall Street Journal reports that AT&T is talking to Deutsche Telekom about forming a joint venture in case AT&T's $39 billion bid to buy T-Mobile is rejected by regulators.

AT&T and Deutsche Telekom may form a partnership to share wireless resources if federal regulators reject AT&T's $39 billion bid to buy T-Mobile USA, The Wall Street Journal reported today.

The Journal cited unnamed sources who said that the companies are discussing a joint venture that would pool resources from AT&T and T-Mobile, which Deutsche Telekom owns. The exact nature of the arrangement is not known, but both AT&T and Deutsche Telekom could use T-Mobile's wireless spectrum, the newspaper said (subscription required). Under such an arrangement, Deutsche Telekom would likely be expected to continue to run T-Mobile as a separate wireless company.

The discussions are still in the early stages, but as regulatory opposition increases, sources told the Journal that the companies may look more closely at this supposed "plan B."

AT&T announced in March that it plans to spend $39 billion to buy T-Mobile USA, the fourth largest wireless operator in the U.S. The acquisition would be the biggest the wireless industry has seen to date. And it would make AT&T the largest carrier in the U.S.

AT&T has tried to present the merger as a win-win for AT&T, Deutsche Telekom, and consumers. The company said that it needs to buy T-Mobile so that it can use T-Mobile's wireless spectrum to provide more wireless capacity to its customers in densely populated cities. It has also said that the T-Mobile spectrum and wireless towers can be used to accelerate its plans to deploy a 4G LTE network.

Meanwhile, Deutsche Telekom, T-Mobile's parent, has made it clear that it wants to exit the U.S. wireless market. T-Mobile has struggled to compete against bigger carriers in the U.S. It was late to the 3G wireless market and has said that it will have to repurpose spectrum to deploy 4G LTE service in the future.

The merger was meant to solve these problems for AT&T and Deutsche Telekom. But regulators say that such a merger will hurt competition, increase prices, and lead to massive layoffs. A partnership between AT&T and Deutsche Telekom in which AT&T would get access to T-Mobile's spectrum could solve the companies' problems while appeasing regulators.

In August the Justice Department filed a lawsuit against AT&T to stop it from buying T-Mobile . The Justice Department said that the wireless market would become too concentrated if the two carriers merged and that it would create less competition and high prices for consumers.

An antitrust trial in front of a federal judge is scheduled for February 13.

But the Justice Department isn't the only regulator that doesn't think AT&T's acquisition is a good idea. The Federal Communications Commission announced last week that it would take measures to block the merger too . AT&T pulled its application and is now focusing on the legal battle with the Justice Department, AT&T has said.

Despite AT&T withdrawing its merger application, on Tuesday the FCC released a 109-page report detailing the reasons why the agency believes the merger would not be in the public interest. The FCC's main complaints are that the merger would reduce competition and it would kill jobs. AT&T denies these allegations and has argued that the merger will actually create jobs.

AT&T has said that it isn't giving up its fight, and the company continues to work on its legal case.

Most analysts say that AT&T's chances of acquiring T-Mobile with so much regulatory opposition are slim. There has also been talk that AT&T is willing to give up 40 percent of T-Mobile's assets to competitors to appease regulators, as well. While not the ideal solution for AT&T, a partnership with Deutsche Telekom could be an option if all else fails.

AT&T declined to comment.

 

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