AT&T may propose to divest as much as 40% of T-Mobile USA’s assets in an effort to win approval from the Department of Justice in an upcoming lawsuit against the government agency. The DOJ sued to block the merger on August 31st, when it said “AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market.” AT&T is planning to divest a lower percentage of spectrum and a higher share of T-Mobile USA’s customers, Bloomberg said Monday. The divestiture may not be enough to add balance to the market, however. “It’s unlikely that the DOJ would allow a big competitor like Verizon to purchase the assets,” Macquarie Securities analyst Kevin Smithen told Bloomberg, which means AT&T may need to rely on smaller regional carriers to pick up the customers and spectrum.

“[DOJ] guidelines require that any settlement or remedy replace the market power T-Mobile currently brings to the marketplace,” Sprint’s spokesperson for public policy John Taylor wrote on his personal blog. “Any new entity would have to create a nationwide network comparable to T-Mobile’s, which covers 97% of America… [and] offer exclusive handsets, just as T-Mobile does each year. AT&T would have to divest enough T-Mobile customers to ensure that any new entity or purchaser of the assets would have the same market share T-Mobile enjoys.”

Wall Street isn’t so sure the divestiture will help AT&T’s cause, either. “Realistically, AT&T is going to take its chances in court in February,” Sanford C. Bernstein analyst Craig Moffet said. “It’s all or nothing.”

On November 24th, AT&T withdrew its original application from the FCC to acquire T-Mobile USA and said it will instead focus on its lawsuit with the Department of Justice, which kicks off in February, before it reapplies for the FCC’s approval of the acquisition.

Read [Bloomberg] Read [John Taylor]

Sprint is openly opposed to AT&T’s proposed $39 billion acquisition of T-Mobile, but the scrappy carrier stands to benefit from the deal according to Piper Jaffray analyst Christopher Larsen. Larsen on Friday lifted his rating on Sprint stock from neutral to overweight, while also upping his price target from $5 to $6.50. The analyst sees brighter days ahead for the carrier through the rest of 2011 and 2012 as well, and he also believes the AT&T / T-Mobile deal could be a good thing for Sprint. Larsen thinks the merger could cause some subscribers to leave the new mega-carrier and flee to Sprint. Beyond that, AT&T may be required to divest some markets in order for the deal to be approved, and Sprint may very well pick up that business or even some of AT&T’s spectrum if it is forced to let some go. Finally, the analyst also believes a post-merger market would be less prone to aggressive price cutting, which would certainly help Sprint maintain a competitive advantage.

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Reuters is reporting that AOL, Inc. is contemplating a breakup through “a complicated series of transactions” that could end in a merger with search giant Yahoo!. The publication is citing “sources close to the plans” and adds that “the latest discussions derive from plans contemplated in 2008 and 2009 before Time Warner spun off AOL to Time Warner shareholders.” Both AOL and Yahoo! declined to comment on the report when contacted by Reuters; AOL’s stock price rose slightly on the news.

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It seems like it was just yesterday, but one year has passed since AT&T and Verizon agreed to a $2.35 billion deal which would provide the former with select assets in 18 states and covering 1.5 million subscribers. Unfortunately for the two, the FCC had a lot on its plate at the time the deal was struck and the sale has been stuck in a regulatory holding pattern ever since. Now it finally looks like the FCC may be ready to approve the deal, as FCC Chairman Julius Genachowski sent an order asking that the acquisition be approved in a vote that could come in the next few weeks. Whether or not the other voting members of the commission will heed the Chairman’s advice remains to be seen, but if they do vote in favor of the deal it means good news for those divested locales who have been waiting anxiously for AT&T to roll in with its stellar 3G coverage.

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As part of the Alltel merger, Verizon Wireless was required to divest nearly $3 billion in wireless assets as shown in the dark blue and red areas in the map above. According to the Wall Street Journal, AT&T is rumored to be one of three interested parties seeking to scoop up these soon-to-be-available markets. Other potential buyers include Providence Equity Partners LLC and a joint venture that includes the private-equity firms of Carlyle Group CYL.UL and Kohlberg Kravis & Roberts & Co. Because of its strong financial position, AT&T could easily out bid these other investment groups and walk away with the lion’s share of these markets. Regulatory approval may stand in the way of AT&T’s rumored plans as the purchase of the divestitures must be approved by the DOJ. It is unclear whether the DOJ would approve such an acquisition by an already large wireless carrier such as AT&T. As of the writing of this post, both AT&T and Verizon Wireless have declined to comment on the rumors. Until these rumors are debunked, the question remains whether customers in these divested markets would be better served by a larger and more experienced wireless carrier like AT&T or a smaller firm such as one of the aforementioned.

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