These discussions aren't advanced and were described by the people as a plan the two companies have on the back burner. Still, the people added, AT&T and Deutsche Telekom are likely to take a closer look at a joint venture as AT&T's planned $39 billion purchase of T-Mobile USA faces mounting opposition.
A joint venture could help solve some of the wireless-capacity constraints both companies are expected to face in the coming years while avoiding the competitive concerns voiced by the Justice Department. Much would depend on how the deal is structured and the details, but a proposal that left T-Mobile USA as a truly viable competitor might pass muster with the Justice Department, a person familiar with the matter said.
In August, the Justice Department said it would block AT&T's proposed acquisition of T-Mobile USA on antitrust grounds. AT&T plans to fight the move, and the case is scheduled to go on trial in February.
Tuesday, the Federal Communications Commission dealt the deal another blow by releasing a 109-page report in which it argues that the combination of AT&T and T-Mobile USA would hurt competition and lead to high prices for customers.
AT&T is still focused on building its case for the acquisition, and it expects to have a reasonable chance of winning against antitrust authorities despite new head winds such as the FCC report, the people familiar with the matter said.
WSJ's Amy Schatz has details of an unusually critical FCC report on the proposed merger between AT&T and T-Mobile. The FCC claims the deal, if approved, could stunt competition in nearly 100 of the top U.S. markets. AP Photo/Mark Lennihan
The nature of the joint venture that AT&T and Deutsche Telekom have discussed is unclear. Analysts have suggested that under a joint venture, the two companies could jointly use the T-Mobile spectrum that AT&T covets while Deutsche Telekom holds onto its T-Mobile customers.
It's unclear whether under such a scenario AT&T would still be on the hook for the full breakup fee—including $3 billion in cash and spectrum with a book value of $1 billion—that it agreed to pay Deutsche Telekom should regulators block the merger.
At the same time, the nation's largest wireless carrier is in talks with smaller players to divest itself of some assets, including customers and spectrum, in hopes of satisfying regulators' concerns that the proposed deal will be anti-competitive. Such divestitures, ideally to one buyer, are intended to help build a stronger wireless player that could compete with the behemoths and preserve choice for customers.
Leap Wireless International Inc., the sixth-largest U.S. wireless carrier, has discussed buying a package of assets belonging to T-Mobile that could be valued at several billion dollars. But the package would be less than 40% of the deal's total value because after that point the deal becomes less viable, according to people familiar with the matter.
Leap is a provider of cheap, no-contract cellphone service under the Cricket brand that's popular in some urban areas and among young people.
The company, whose market capitalization is around $700 million, would get financing from Deutsche Telekom to fund the purchase, the people said. AT&T is expected to informally make the divestiture proposal to officials in coming days, they added.
A deal with Leap would raise questions about how the company would integrate T-Mobile USA assets. Leap, with 5.8 million customers, is far smaller than T-Mobile, which has 33.7 million customers. It currently caters to a far more limited segment of consumers than T-Mobile does.
The Justice Department has so far viewed the companies' divestiture discussions with skepticism, said a person familiar with the matter. There's little indication a new offer along similar lines would be enough to resolve the sweeping competitive concerns, the person said.
Should Justice officials indicate the Leap proposal doesn't address their concerns, AT&T could engage in divestiture talks with other potential buyers, such as satellite provider Dish Network Corp., cable companies and foreign buyers, according to the people.
AT&T is also exploring whether to offer regulators price freezes and the divestiture of certain AT&T markets rather than just markets where T-Mobile is strong, one of the people said.
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