London: AT&T Inc and T-Mobile USA’s parent company Deutsche Telekom AG are still battling to save their $39 billion merger and are not in talks about a network-sharing alternative, people familiar with the matter said on Thursday.

Photo: Bloomberg

The Wall Street Journal said this week the two groups had discussed options including forming a joint venture to pool network assets if the merger, which faces opposition from regulators, were to fail.

The report, which cited unnamed people familiar with the matter, said the network sharing talks were “not advanced" and “were a plan the companies have on the back burner."

Regulators oppose the merger of T-Mobile, the fourth largest US cellphone company, with number two player AT&T because they think it will damage competition.

T-Mobile USA was a growth engine in its early days for Deutsche Telekom, but it now badly lacks the spectrum it needs to build a fourth-generation network capable of handling the vast data volumes required by US consumers and businesses.

Bankers advising telecom companies not involved in the deal say Deutsche Telekom is privately resigned to the deal failing and had drawn up a number of other contingency options, including asset sales.

The German telecom is big in European terms but its cash flows are not enough for the huge investment needed in a market the size of the United States.

AT&T representatives were not immediately available to comment on the story. Deutsche Telekom said it was still completely focused on winning approval for the proposed deal, adding “there is no plan B."

Bankers focused on the telecom sector said that Deutsche Telekom’s British joint venture with France Telecom, was a model that could possibly be implemented in the United States.

The French and German telecoms pooled their UK units in September 2009, taking an equal share of new venture Everything Everywhere, which has about 27.5 million subscribers and annual revenues of about £7 billion.

“They could merge networks in the US and still deliver a substantial portion of the synergies of a full merger. If they kept two separate brands that might be more acceptable to regulators," one banker said.

Devil In The Detail

Whether or not a joint venture would be approved by antitrust enforcers would depend on how such a venture is structured, another source familiar with the matter told Reuters previously.

“If they want to share networks, there are lot of ways to do that without raising antitrust issues, but the devil is in the details," the third source, declining to be further identified.

In the event that the companies win approval for the deal on condition that they divest some assets, Deutsche Telekom has communicated to AT&T that it could provide “a few billion dollars" of financing for a buyer of any related divestitures, other people have told Reuters.

The Journal quoted sources as saying that AT&T is expected to make an informal proposal to the US department of justice about divestitures in coming days.

The DOJ sued to block the deal in August due to concerns it would harm competition and that case is due to go to trial in February. AT&T last week said it would withdraw its deal application with the US Federal Communications Commission so it could first focus on the antitrust case.