AT&T may ditch T-Mobile bid for a smaller deal

AT&T may be shifting gears as it prepares to abandon its original plan to buy T-Mobile USA for $39 billion, according to The Wall Street Journal.

The newspaper reported today that talks between AT&T and the U.S. Department of Justice to come up with an acceptable plan for the wireless giant to buy T-Mobile have stalled. The Justice Department sued AT&T in August to stop the planned merger, stating that such a merger would hurt competition.

Since then AT&T has considered divesting or giving up certain parts of the T-Mobile network to satisfy the government's antitrust concerns, according to reports. At one point, sources said that AT&T was willing to give up more than 30 percent of the value of the deal to a smaller competitor. Leap Wireless has been considered a potential buyer of T-Mobile's spectrum, as is satellite provider Dish Network.

But the Journal said that the talks with Leap Wireless have recently faltered, and now it seems unlikely that AT&T will be able to come up with something that will satisfy regulators.

AT&T has already signaled that it sees its fight as an uphill battle and that it may change its course. Last week, the company asked the federal court hearing its antitrust case to put the case on hold, so that it may review its options. The antitrust trial was expected to begin in the middle of February.

AT&T has supposedly considered walking away from the deal entirely. But if it does that, AT&T will be on the hook for at least $3 billion in cash and potentially other assets as part of a break-up fee it promised to Deutsche Telekom, T-Mobile's parent company.

In addition to the costly break-up fee, if the deal falls apart entirely, AT&T will also lose spectrum for future growth. The company has said its primary reason for wanting to acquire T-Mobile is to increase its spectrum to expand its 4G LTE network.

For these reasons, AT&T may also consider a smaller deal that might still provide it access to the T-Mobile spectrum, while avoiding an outright acquisition of the company. AT&T may set up a joint venture with Deutsche Telekom. And it may include other partners, such as Leap Wireless or Dish Network.

If AT&T is able to negotiate a smaller deal or involve other partners, there's a chance it could renegotiate its break-up fee with Deutsche Telekom.

AT&T did not respond to a request for comment on the latest rumors. And the company has been relatively quiet as it figures out its next steps. Sources have told the Journal that AT&T may come up with a decision on its next move by the end of the year.