AT&T acknowledges failure risk in $39B T-Mobile deal

— -- AT&T, whose $39 billion bid for T-Mobile USA is challenged by the Justice Department, will record one-time costs of $4 billion this quarter to reflect the risks of a collapse of the deal.

AT&T and T-Mobile owner Deutsche Telekom withdrew their applications to the Federal Communications Commission to focus on winning clearance from the Justice Department, the companies said in separate statements Thursday. The pretax accounting costs reflect the potential breakup fees due to Deutsche Telekom, Dallas-based AT&T said.

"What that tells you is AT&T's auditors have now concluded that the deal is likely to fail and have forced the company to take that charge," said Will Draper, an analyst at Espirito Santo in London who advises holding Deutsche Telekom shares and doesn't have a rating on AT&T. The chances of the deal going through are now about 10%, down from 25%, he said.

The Justice Department sued to block the transaction in August, saying a combination of AT&T and T-Mobile would eliminate one of four national U.S. wireless carriers and hamper competition. FCC Chairman Julius Genachowski this week asked commissioners to send the proposed takeover to an agency judge for a hearing.

Book value

Deutsche Telekom, based in Bonn, fell 0.6% to a seven-week low of 8.69 euros when markets closed in Frankfurt Thursday. AT&T fell 1.9% to $27.55 in New York Stock Exchange trading Wednesday. The U.S. market is closed Thursday for Thanksgiving.

AT&T's fourth-quarter net income may reach $3.14 billion, according to the average estimate of eight analysts compiled by Bloomberg before Thursday's announcement.

The $4 billion accounting charge includes $3 billion in cash and $1 billion in book value of wireless spectrum, AT&T said in its statement. Deutsche Telekom has said it values the total breakup package at as much as $7 billion, including lower charges for its customers to terminate calls on AT&T's network.

"AT&T Inc. and Deutsche Telekom AG are continuing to pursue the sale of Deutsche Telekom's U.S. wireless assets to AT&T and are taking this step to facilitate the consideration of all options at the FCC and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice," AT&T said.

'Rocky path'

Carol Roos, an external spokeswoman for AT&T, declined to provide details beyond the company statement.

Deutsche Telekom Chief Executive Officer Rene Obermann said as recently as Nov. 10 that the companies will probably be able to maintain a timetable of completing the transaction during the first half of 2012.

"It's a rocky path that Deutsche Telekom and AT&T have before them," said Jan Goehmann, an analyst at Norddeutsche Landesbank Girozentrale in Hanover who recommends buying Deutsche Telekom shares. "I can't imagine they will be able to stick to the original schedule."

AT&T and Deutsche Telekom plan to renew their attempt to gain FCC approval "as soon as practical," they said. "This doesn't mean that anything is over," said Andreas Fuchs, a spokesman for the German company.