A few months ago, AT&T offered to acquire T-Mobile for $39 billion. T-Mobile’s owner Deutsche Telekom AG was all for it and for a while it looked like it was going to go through, consolidating the largest and third largest mobile operators into one monster dominant cellular provider. Verizon Wireless then would be in second place and Sprint would be in a distant third place. But is it a good deal?

Of course the companies want it. AT&T would consolidate its holdings and dominate the market, while Deutsche Telekom AG just wants to get out of the mobile business and use the funds elsewhere. But now that the Federal Communications Commission (FCC) and Department of Justice (DOJ) have looked at the deal, the merger no longer appears to be a sure thing. In fact, the DOJ is suing AT&T, T-Mobile, and Deutsche Telekom AG to stop the proceedings. A trial begins February 13, 2012. Cellular operators Sprint and C-Spire are also suing AT&T to stop this merger.

Pros And Cons

If the merger happens, AT&T would immediately expand its U.S. footprint from about 80% coverage now to about 97% coverage. This is good for rolling out Long-Term Evolution (LTE) and helping to roll out the federal National Broadband Plan for full U.S. coverage by 2020. In an unintended consequence, AT&T admitted that it could get the same LTE coverage with an investment of $3.8 billion, one-tenth the cost of T-Mobile. It would be interesting to see what that analysis was all about. In any case, revealing that anomaly gave AT&T a credibility problem with the FCC and DOJ.

AT&T also claimed that the merger would create jobs. That usually isn’t the case with a merger, as any combined operation is sure to result in the elimination of duplication in multiple areas. It does not seem realistic to assume new jobs as AT&T has projected.

Anyway, if the merger is approved, it would probably take many years to mesh the two systems, work out the massive cultural differences, integrate the back office, and resolve multiple spectrum assignment issues. Smaller cellular operators could be hurt by the reduced competition. And, prices could rise for both individual and enterprise customers.

If the merger doesn’t occur, what happens to T-Mobile? According to the deal, if the merger falls through, AT&T may have to pay Deutsche Telekom about $6 billion if certain conditions are not met—not a bad result, but not the desired one for either company. Alternately, will someone else come along to buy T-Mobile? If so, who?

Sprint is a likely candidate, but it certainly doesn’t have the funds given its recent big commitment to Apple for the iPhone contract—not to mention big commitments with Clearwire and LightSquared. The base cellular technologies (cdma for Sprint and GSM for T-Mobile) are incompatible too, though both are eventually headed to LTE.

None of the other mobile carriers have the financial horsepower to complete an acquisition of that magnitude. Verizon could do it but does not seem interested. Maybe a cable company or other non-cellular company would give it a try.

My initial prediction was that the merger would happen. Now I doubt that it will. And if the feds kill it, will the proposed Google/Motorola merger get the axe as well? It’s not the same kind of merger, but it’s still a monster that could get some serious government scrutiny. Mergers are generally good for the companies and their stockholders. In some cases, they’re also good for the consumer. I hope the government is smart enough to recognize and sort the bad mergers from the good ones to maintain a healthy industry.