AT&T has officially announced this afternoon that it has dropped its plans to merge with competitor T-Mobile. The news comes on the heels of rumors earlier today that the deal had all but fallen apart. The company will now pay a total of $4 billion to Deutsche Telekom as a breakup fee — $3 billion in cash plus about a billion in spectrum — and the two carriers will agree to a roaming deal which will allow devices for each network to work on the other (we've already heard some evidence of interoperability on the 1900MHz band). As expected, AT&T is citing recent FCC and DOJ resistance which called the proposed $39b takeover of T-Mobile into question as the main motivator for the decision.
AT&T is taking a pretty aggressive tone in its announcement, echoing earlier concerns about meeting future needs for spectrum — not a surprise, considering that's been its claimed motivation all along:
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 roaming deal could end up being an interesting opportunity for both carriers. We don't yet know the details of how it'll work or what bands or technologies will be covered, but T-Mobile could potentially end up with a viable LTE solution while AT&T may offload some HSPA+ traffic into T-Mobile's 1900 holdings. Additionally, this may not spell the end of Deutsche Telekom's attempt to sell off its US business — the company has made very clear that T-Mobile USA must fund its own growth, and with Dish taking a recent interest, there may still be FCC-friendly opportunities out there.