Stephen Foley: AT&T's costly breakdown in communication


Outlook: When AT&T, the second-largest mobile operator in the US, announced a $39bn merger with the fourth-largest, T-Mobile USA, in May, AT&T chief executive Randall Stephenson must have been the only person who thought this deal would make it past the competition authorities.

The Justice Department and the Federal Communications Commission had already signalled a tough stance against this kind of anti-consumer combination. Telecoms analysts were sceptical they would allow the Big Four operators to become an Even Bigger Three.

And even the management of T-Mobile was doubtful. Reflecting those doubts, they negotiated a break-up fee of $3bn in cash plus an agreement that, if the deal falls apart, AT&T will hand it $1bn-worth of spectrum and a lucrative roaming rights deal. This week, AT&T took a $4bn charge to its accounts, a provision for the break-up fee and spectrum costs, a precursor to giving up on the deal (which for now, it is promising to defend).

Deutsche Telekom, T-Mobile's parent, has been complaining for several years about spectrum limitations, falling profitability and eroding market share in the US. Not only has Mr Stephenson's folly cost AT&T dear, it looks likely to re-energise an ailing rival. What a disaster.