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Updated: AT&T Kills Bid For T-Mobile, Citing Government Opposition

AT&T (NYSE: T) formally ended its $39 billion acquisition bid for T-Mobile Monday, bemoaning the strong opposition from the U.S. government to the deal and noting that the scrapping of the deal will “not change the realities of the U.S. wireless industry.”

This outcome seemed inevitable after the Federal Communications Commission referred the matter to a hearing, taking the further step of releasing its report on the merger in which it claimed that AT&T did not prove that the merger would either create jobs or not lead to an unprecedented concentration of market power in the wireless industry. AT&T and Deutsche Telekom (NYSE: DT), which owns T-Mobile, attempted to find ways around the deal, such as offloading spectrum on other companies, but it would appear that AT&T’s primary interest was in T-Mobile’s customer base all along.

AT&T argued its case right up until the end in a statement:

The actions by the Federal Communications Commission and the Department of Justice to block this transaction do not change the realities of the U.S. wireless industry. It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately. The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled.

The merger would have created the largest wireless company in the U.S. by a strong margin, combining the second-largest company with the fourth-largest company. Opposition was heavy from consumer groups and from Sprint (NYSE: S), the third-largest carrier in the U.S., over what they felt would be incredible pricing power for wireless phones as well as the ability to lock in exclusive smartphone handset deals unavailable or unaffordable for smaller carriers.

AT&T argued it needed the deal because a spectrum crunch would have left it unable to build out a truly national network that could reach 97 percent of Americans, a goal it cited frequently as in line with President Obama’s goals for wireless broadband adoption. It also argued that T-Mobile would not be able to follow the rest of the industry’s lead in adopting LTE wireless technology, which is now on the road map of every other wireless carrier but T-Mobile. That means smartphone companies are much more likely to design their handsets around that standard, which could have made it much harder for T-Mobile to obtain cutting-edge smartphones.

But opposition was fierce almost from the day AT&T shocked a wireless industry headed to the CTIA conference in March with news of the deal. The mostly likely immediate outcome of the deal would have been to force Verizon to purchase Sprint, which is also struggling, in a bid to match AT&T’s scale. That would have left a huge percentage of the U.S. wireless industry in the hands of two companies who are not necessarily known for low prices or customer service.

And the deal would have also forced handset makers to do almost all their business with two major carriers instead of four. Sprint and T-Mobile may not be as wealthy or healthy as their bigger competitors, but Sprint now sells the iPhone and T-Mobile has done well for itself as an important Android partner on several launches.

AT&T will have to pay Deutsche Telekom a $4 billion break-up fee as a result of the deal not coming to fruition, but the companies did announce a joint roaming agreement, the details of which were not provided.