AT&T and Justice Dept. ask to delay lawsuit

By putting the legal proceeding on hold, AT&T can spend its energy working out a deal with regulators, instead of compiling evidence for a court date in February.

AT&T and the U.S. Department of Justice have asked a federal judge to delay any more legal proceedings in the antitrust case against AT&T and T-Mobile.

AT&T to buy T-Mobile

On Monday, AT&T and Deutsche Telekom, T-Mobile's parent company, requested that Judge Huvelle, who is overseeing the case, stay any further court proceedings until January 18, 2012. AT&T said that the companies need time to evaluate their options. The U.S. Department of Justice, which sued AT&T in August to stop its merger with T-Mobile, joined in the filing.

AT&T said that it is committed to working out a deal with Deutsche Telekom, but it needs more time. The carrier was scheduled to face the Justice Department in court in mid-February.

"We are actively considering whether and how to revise our current transaction to achieve the necessary regulatory approvals so that we can deliver the capacity enhancements and improved customer service that can only be derived from combining our two companies' wireless assets," AT&T said in a statement.

Last week, the Justice Department asked the court to delay the trial, arguing that since AT&T and Deutsche Telekom withdrew their application for the merger from the Federal Communications Commission there was no rush to begin the trial in February. AT&T initially argued against a delay. But on Monday, the company joined with the Department of Justice to put the legal proceeding on hold.

The $39 billion deal is proving to be much more difficult to get done than AT&T had initially anticipated. Both the Department of Justice and the Federal Communications Commission oppose the deal. The Justice Department sued the company in August to block the merger. And last month, the FCC said it would not support the merger either. As a result, AT&T withdrew its merger application at the FCC when it became clear that the agency opposed the deal. The company said it would refile the application at a later date.

Still, AT&T maintains that it will continue to fight to get the deal closed. But the company's latest move indicates that it may be trying to strike a deal with the Department of Justice to satisfy the agency's antitrust concerns. AT&T has reportedly offered to regulators that it would divest a large portion of T-Mobile's spectrum and customers in exchange for getting approval for the deal.

By putting the legal proceeding on hold, AT&T can spend its energy working out a deal with regulators, instead of compiling evidence for a court date in February, said one antitrust attorney who didn't want his name used.

AT&T is highly motivated to get the deal closed in some fashion given the massive breakup fee it would have to pay if the deal falls apart. If the company is unable to get the deal approved by regulators it will have to pay a breakup fee worth $3 billion in cash, plus an additional $3 billion or so in other assets. AT&T has already begun preparing for the worst, and the company said it would take a charge for $4 billion.

But the breakup fee is only one reason AT&T is motivated to close the deal. AT&T also needs T-Mobile's valuable wireless spectrum. AT&T has argued that it needs more spectrum to grow its network and keep up with demand for wireless data services. The problem that AT&T and other wireless operators face is that the FCC has no wireless spectrum in the pipeline for auction. The agency says it would like to make an additional 500 MHz of spectrum available for auction in the next 10 years, but the process for identifying, clearing and auctioning that spectrum is a long one.

In the interim, wireless operators such as AT&T and Verizon Wireless are striking deals with anyone they can to get their hands on additional spectrum. For example, in addition to the T-Mobile deal, AT&T is also purchasing wireless spectrum from Qualcomm. The FCC has already given its stamp of approval for this deal. Verizon Wireless has also recently struck a deal with cable operators, Comcast and Time Warner, to buy their unused wireless spectrum licenses.

All this deal-making has put pressure on T-Mobile, which has been struggling to compete against larger players AT&T and Verizon. Deutsche Telekom has been clear that it would like to exit the U.S. wireless market, and AT&T offered a good opportunity for that exit. But if the deal falls through, the German company will have to look for alternatives.

The cable companies had been possible partners for T-Mobile until they announced their deal with Verizon.

Now there is talk that T-Mobile may look to other partners, namely satellite provider Dish Network. Bloomberg reported Monday that Dish Network CEO Joseph Clayton said he would like to partner with T-Mobile if AT&T's bid fails to be accepted by regulators.

Dish has been buying wireless spectrum and plans to build a 4G LTE wireless network. Clayton told Bloomberg that he could use T-Mobile's spectrum to build a real competitor to AT&T and Verizon.

Udated 12:05 p.m. PT: This story was updated with additional background information and analysis.