Moffett: Time For AT&T To Concede Defeat in T-Mobile Merger Proposal

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With the Federal Communications Commission's Nov. 22 decision to refer the $39 billion AT&T/T-Mobile merger to an administrative law judge with the message that it threatens jobs and competition and should not be allowed, it is now up to AT&T to prove in that hearing that the agency brass are wrong -- if it chooses to continue to push for the union. One top analyst suggests the odds of that are slim and AT&T should scrap the deal.

Designating a deal for hearing is a signal the FCC thinks there are major problems with the proposal. Its only other option is to approve the deal, with or without conditions. The order still must be approved by a commission majority, but the chairman is expected to get that from the other two Democrats.

In a memo to clients, top media analyst Craig Moffett of Bernstein Research, advised that it was time for the telco to strike the flag. "We believe that it is now time for AT&T to concede defeat and withdraw the merger," he wrote.

Moffett said that given that the Department of Justice has sued to block the deal, and there would not be a second trial at the FCC that AT&T would have to win at well, he says the likelihood of success on both fronts is de minimis. He noted that AT&T could drag the process out given that it will have to pay a break-up fee if it does scrap the deal, but he also pointed out that the telco giant will have to continue to do business with the FCC and DOJ. In fact, at the same time the chairman circulated the order, he also circulated one approving AT&T's purchase of Qualcomm spectrum.

The FCC announcement did not change BernsteinResearch's market-perform rating for AT&T stock since it had already put the odds of approval of the deal at only 10% given Justice's move to block it. Moffitt said AT&T had weathered the end to its exclusive iPhone deal well, and that the question for the company going forward was whether it will "pursue another deal to acquire spectrum; whether they instead will be forced to increase capital spending to sustain network quality as usage scales; or whether they will simply more aggressively ration consumption."

An AT&T spokesperson was not immediately available for comment.