Dead Deal Walking! What's Next for AT&T?

You know that audacious $39 billion merger deal between AT&T (NYS: T) and T-Mobile USA? Yeah, you can forget about it. The Wall Street Journal reports that talks meant to save the merger have "gone cold."

Ma Bell has faced huge hurdles to closing this deal from day one, including loud opposition from rival Sprint Nextel (NYS: S) , a lawsuit from the Department of Justice, and a rarely used procedural weapon in the FCC arsenal. There's a $4 billion cancellation fee to keep the fires under AT&T burning, though about half of that seems to go away thanks to tax effects -- maybe Uncle Sam should have supported this deal all along in order to stop $2 billion of lost tax revenues?

The last Hail Mary play involved trying to sell off some of T-Mobile's assets to wireless rivals such as Leap Wireless (NAS: LEAP) , MetroPCS Communications (NAS: PCS) , and even mercurial satellite TV operator DISH Network. That way, AT&T's already huge shadow over the wireless sector wouldn't grow uncomfortably gigantic. The government might be able to stomach a structure like that.

But the keyword here is might. Leap was reportedly the most serious asset buyer, but backed away from the table "amid concern that even with such sales, the deal was unlikely to win over the Justice Department."

What's Plan B?
So it's back to the lab again. Verizon (NYS: VZ) is dealing with its own spectrum crunch by buying radio wave licenses from a bushel of cable TV companies. I find delicious irony in the $3.9 billion combined price tag for these Verizon deals -- about equal to AT&T's breakup fees that involve losing spectrum to the jilted takeover target.

Go big or go home, they say. Ma Bell sure went big, and now goes home with her tail between her legs. The company could follow Verizon's lead and try to shake out licenses from non-telecoms who don't know what to do with theirs, or perhaps go on a less splashy acquisition spree among regional and rural telecoms -- Cincinnati Bell or Alaska Communications Systems (NAS: ALSK) , anyone?

But those strategies would largely miss the true American metropolises by a country mile, and thus do little to improve AT&T's big-city services.

Oh yeah? Got any better ideas, Mr. Smartypants?
Sure. If I ran the show at AT&T, I'd tap a major infrastructure hardware player for a joint research venture, and then pour billions of research dollars into reaching true 4G (and then 5G) performance before anyone else. That way, the company could truly create American jobs and a very real business advantage, all without raising the bile of regulators. That proposed $39 billion deal is about 11 times Alcatel-Lucent's (NYS: ALU) annual R&D budget, for example. If nothing else, the venture could raise billions by selling the fruits of their labor around the industry -- and the world.

I'm not holding my breath for a truly innovative move like that, of course. CEO Randall Stephenson would be railroaded out of the AT&T boardroom covered in tar and feathers for even suggesting such a thing. Instead, we'll see Ma Bell opening its checkbook for some other spectrum-rich takeover that doesn't require any fresh thinking.

AT&T may not be the most innovative knife in the drawer, but nearly 100 million wireless subscribers keep the cash flows healthy and dividends rock-solid. Check out the details of 11 never-say-die dividend ideas -- including AT&T.

At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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