AT&T Posts Massive Quarterly Loss; Blames US Gov't

Dennis Faas's picture

Despite extremely strong smartphone sales, AT&T says it lost $6.7 billion in the last three months of 2011, which the company blames on government for blocking its proposed takeover of T-Mobile -- a decision which also triggered a hefty penalty.

Between October and December AT&T sold 9.4 million smartphones, up 60 per cent over the same period last year. The surge was largely driven by the new iPhone 4S. In fact, 80 per cent of all AT&T's sales for the period involved some version of the Apple smartphone.

Pension and Subsidy Costs Turn Ink Red

With its core business booming, AT&T might be expected to report significant profits for the quarter.

Instead, high costs for employee pensions and a large up-front subsidy for each new iPhone customer contributed to major losses. AT&T will make back the subsidies through monthly subscriptions, but this will take time. (Source: informationweek.com)

The main cause for the loss, though, was a $4 billion penalty fee resulting from its canceled deal to purchase T-Mobile. Under the terms of the takeover agreement, the cancelation required AT&T to pay $3 billion in cash to T-Mobile, as well as handing over $1 billion worth of its wireless spectrum.

In other words, AT&T has given up the the rights to send and receive signals over a particular set of frequencies.

The takeover collapsed after the Federal Communications Commission (FCC) first put the deal on hold pending a full investigation. At the same time, the Department of Justice went to court to block the takeover.

Officials argued that whatever benefits would come from giving AT&T and T-Mobile customers additional wireless service across more parts of the country would be outweighed by the harm caused to consumers from the resulting restricted competition.

AT&T Slams Government "Inconsistency"

AT&T has blamed the FCC for the deal's collapse and says the agency is inconsistent about which deals it approves. The company's chief executive, Randal Stephenson, told analysts, "The FCC is intent on picking winners and losers rather than letting these markets work." (Source: wsj.com)

Regardless of the merits of that claim, AT&T agreed to the terms of the huge potential penalty clause, although experts suggested there was always a significant risk that officials might object to the deal.

Rate this article: 
No votes yet