Bloomberg News

AT&T Investors Face Risks if T-Mobile Deal Is Pulled, Says Fitch

December 20, 2011

Dec. 15 (Bloomberg) -- AT&T Inc.’s endangered $39 billion takeover of T-Mobile USA Inc. could create greater risk for bondholders if it’s killed and the company opts to boost stock buybacks or spectrum purchases, according to Fitch Ratings.

AT&T, the nation’s second-largest wireless operator, was granted a delay until Jan. 12 to decide whether to proceed with the proposed deal that is opposed by U.S. regulators. Without the benefits the deal would bring, AT&T could increase share buybacks beyond “moderate levels,” Fitch said today in a report.

Should Dallas-based AT&T decide to end the deal, it will pay T-Mobile parent Deutsche Telekom AG a $3 billion cash fee. 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’s need to enhance its capacity could lead to a rise in capital spending and/or the acquisition of spectrum through other transactions,” according the report. “We would evaluate those negative factors in the context of the company’s strong free cash flow and its capital spending flexibility,” the Fitch report said.

The move comes as AT&T faces a difficult decision on how to address its need for more spectrum and network capacity, with or without T-Mobile, amid rapid growth in network data traffic.

The report also says a scrapped deal could have “knock-on effects” for the credit of other players in the industry including T-Mobile which could have trouble remaining “independently viable and competitive.”

Fitch placed AT&T on Rating Watch Negative in March after the deal was announced, with its long-term issuer-default rating of ‘A.’

AT&T rose 0.2 percent $28.88 at 11:36 a.m. in New York.

AT&T news: T US <Equity> CN <GO> Legal headlines: TLAW <GO> Bloomberg legal resources: BLAW <GO>

--Editors: Niamh Ring, James Callan

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To contact the reporter on this story: Scott Moritz in New York at

To contact the editor responsible for this story: Peter Elstrom at

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