Tickers in this Article: T, VZ, S, ALU, DISH, CLWR, DTEGY.PK, DTV, VOD, AAPL, LEAP, CTL, PWAV
Maybe there's some truth to the aphorism "nothing ventured, nothing gained", but AT&T (NYSE:T) has come up snake-eyes on its latest roll of the dice. In what had become not much of a surprise at all, AT&T announced Monday evening that it was abandoning its bid to acquire Deutsche Telekom AG's (OTCBB:DTEGY) U.S. operator T-Mobile because of what increasingly looked like insurmountable regulatory objections.

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The News
AT&T is abandoning its bid to combine with T-Mobile and become an even larger player in the U.S. mobile services market. This outcome is not all that surprising. Apart from the howls of self-interested parties like Sprint (NYSE:S), ample regulatory objections and blockades were raised to this deal. There's no doubt that it would have represented considerable consolidation (blending the No.2 and No.4 providers), though T-Mobile's position as something of a weak sister in the industry may have led AT&T to believe it could get the deal done. (For related reading, see How To Pick The Best Telecom Stocks.)

Instead of attempting to appeal or extend the regulatory approval process or renegotiate the break-up fee, AT&T is paying up and moving on. In addition to $3 billion in cash to Deutsche Telekom, AT&T is handing over spectrum. Given that AT&T is taking a $4 billion charge for the break-up, it's not hard to see that the company is valuing that spectrum at about $1 billion. For Deutsche Telekom, that will be a welcome asset - it adds spectrum in 128 cities, adds about 10% to its spectrum holdings and should mean that it is set for spectrum through 2015.

What It May Mean for the Industry
The break-up of this deal is probably some relief for Verizon Wireless (co-owned by Verizon (NYSE:VZ) and Vodafone (Nasdaq:VOD)), but it was not a major threat. T-Mobile was positioning itself as more of a low-price competitor anyway, and the biggest risk may have been that the larger AT&T would become a more attractive and powerful partner when dealing with phone manufacturers like Apple (Nasdaq:AAPL).

For Sprint, this is a reprieve. A larger AT&T would have further marginalized what is already a struggling rival. For other wireless carriers, it remains to be seen if this deal break-up has much significance. Companies like Leap Wireless (Nasdaq:LEAP) would probably have preferred to see another low-cost rival go away, but a more fractured market is arguably better for Leap.

Some Benefits to Equipment Providers
With this deal now resolved, there could be less uncertainty in the equipment space. Alcatel-Lucent (NYSE:ALU) was seeing some reduction in AT&T business due to this deal, and AT&T should now be in a position to return to its normal plans. This could be an even bigger development for Powerwave (Nasdaq:PWAV), though, as this small provider was clearly badly hurt by reductions in orders tied to the uncertainties of this deal.

What Now?
With T-Mobile off the table, it won't be surprising to see AT&T take a run at DirecTV (Nasdaq:DTV) or Dish Network (Nasdaq:DISH). AT&T has been rumored to be interested in a satellite provider for some time, and DISH has the added benefit of spectrum.

For T-Mobile, the "what now?" question is murkier. Deutsche Telekom has been trying to cut debt and reduce its CAPEX spending on T-Mobile - DT has long wanted to sell this business and eliminate that constant drain on resources. A merger with Sprint is not likely, as they run different networks and the Nextel deal should have taught the company a lesson already. A deal with Clearwire (Nasdaq:CLWR) could make some sense, but T-Mobile doesn't need what Clearwire has the most to offer - namely, spectrum. Perhaps CenturyLink (NYSE:CTL) or a foreign player would have interest in T-Mobile, but it seems more likely that Deutsche Telekom will have to continue to play a hand that it would clearly rather fold on the right terms. (For related reading, see The Merger - What To Do When Companies Converge.)

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

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