Summary:

One of the most audacious and controversial mergers in mobile history is dead, and give AT&T (NYSE: T) at least a little credit for understa…

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photo: Shutterstock / SERHAT AKAVCI

One of the most audacious and controversial mergers in mobile history is dead, and give AT&T (NYSE: T) at least a little credit for understanding when to hold ‘em and when to fold ‘em. In the face of two defiant government agencies AT&T had little chance but to call off its $39 billion acquisition of T-Mobile, but where does that leave all the involved parties come 2012? A quick rundown:

AT&T: Ma Bell remains the second-largest wireless carrier in the U.S., and is nipping at rival Verizon’s heels thanks to a strong lineup of Android phones and its iPhone legacy. It had 100.7 million subscribers at the end of the third quarter to Verizon’s 107.7 million subscribers, which accounts for an awful lot of the 313 million people who live in the U.S. And even though Apple (NSDQ: AAPL) just launched the first iPhone on more than one U.S. carrier at the same time, AT&T seems to be holding its own.

But there is a longer-term problem for AT&T when it comes to growth, which is exactly why it coveted T-Mobile. The company tried to make this an argument about the need for more spectrum, and it’s clear that the industry as a whole needs more spectrum to grow (more on that later). Yet AT&T’s own spectrum situation is not nearly as dire as it would have regulators believe; instead, it was driven more by the need to grow its subscriber base in light of its infamous reputation in the iPhone community for network performance and customer service.

Now it will actually have to compete on the merits of its products and services. That might be a problem.

T-Mobile: What a waste of a year. T-Mobile is definitely vulnerable after throwing all of its eggs in AT&T’s basket, shedding subscribers by the quarter and having endured a year in which AT&T basically forbid it from appearing on the public stage in order to maintain appearances that this was one big happy merger of “equals.”

AT&T was right about one thing: without bigger pockets, T-Mobile does not have an easy route to LTE, the 4G wireless standard that has now been embraced by the rest of the industry and therefore ensuring it will be the favored technology of handset makers. It might have to cut deals with third-party LTE providers like Clearwire (NSDQ: CLWR) or LightSquared, but those come with their own distinct perils. Perhaps a more likely outcome is that T-Mobile joins forces with a smaller player, like U.S. Cellular, MetroPCS, Leap Wireless, or C Spire in order to pool their assets toward network expansion.

Verizon: Other than Sprint (NYSE: S) (more on that later as well), perhaps no one was more delighted by the outcome of this deal than Verizon. Big Red chose to beef up its spectrum holdings by cutting deals with cable companies for spectrum and resale agreements as opposed to snapping up smaller competitors. And it continues to enjoy the defection of urban iPhone users fed up with AT&T service who are switching as soon as their contracts allow.

Sprint: As the most visible leader of the opposition to the deal, Sprint can savor a hard-fought victory. “From the beginning, Sprint has stood with consumers who spoke loudly and clearly that AT&T’s proposed takeover of T-Mobile would create an undeniable duopoly that would have resulted in higher prices, less innovation and fewer choices for the American consumer,” the company said in a statement late Monday.

Yet Sprint has huge problems completely unrelated to AT&T that won’t go away just because this merger is dead. The company has a ton of debt, a bumbling network partner in Clearwire that it has been forced time and time again to support, and a huge bill as a result of its efforts to secure an iPhone deal of its own.

Sprint would have been roadkill for Verizon should the AT&T/T-Mobile deal have gone through, and everyone knows it. Now that it will live to fight at least another year as a separate company, it will have to prove that it can hold its own with the bigger boys while struggling to get its finances in order.

Other carriers: There seems little doubt we’re going to see consolidation in wireless to some degree; it’s just that consumers and the U.S. government would likely see the carriers in the fifth through eighth positions join forces in order to combat the big guys, as opposed to getting eaten up by the big guys. As they all continue to settle for lower-tier smartphones (with the exception of C Spire) and struggle to build faster 4G networks to compete at the top, it might make a ton of sense to hang together rather than hang separately.

Consumers: The prospect of nearly all major smartphones in the U.S. falling into the control of just two companies should have given consumers pause, and it would seem that legislators, regulators, and advocacy groups recognized that. There’s no question that the U.S. needs fast broadband connections–wired or wireless–and that such a feat is an extremely difficult challenge in a nation that spans this type of geographic area.

Yet turning control of those airwaves over to companies that were once broken apart because of their tendency to monopolize their positions doesn’t seem like the right approach.

Regulators: After several years of a Democratic administration threatening to get more serious about enforcement only to let Google (NSDQ: GOOG) buy nearly everything in its path, America’s antitrust regulators have finally shown that they have a spine. The Department of Justice was determined to fight the merger in court in February but it was probably the November decision of the Federal Communications Commission to refer the matter to a hearing–which would have exposed AT&T’s weak arguments–that doomed the deal.

They’ve set a precedent for future mergers that the government won’t always trade short-term efficiencies against the long-term best interest of consumers, and recognized the public sentiment against big-business-as-usual heading into an election year.

But their job is only half done: AT&T is right to call for Congress and the FCC to expand access to wireless spectrum for this industry. In this day and age, TV broadcasters do not require nearly as much wireless spectrum as they control, and the future of Internet services depends greatly on the ability of the entire wireless industry to access that wireless spectrum.

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