Even as the No. 2 US wireless service provider gears up for any lengthy court battle against the Justice Department, AT&T is prepared to make concessions to deal with concerns that the T-Mobile deal is anti-competitive and could cause wireless prices to increase.
This two-track plan will allow AT&T to try to find a settlement prior to the lawsuit reaches the court.
"AT&T is pretty determined that they can look for a solution, and they are pretty confident, " one of the sources stated, requesting anonymity as the talks are private.
The US government on Thursday sued to block AT&T's purchase of T-Mobile USA, a deal that would vault the combined company above Verizon Wireless since the No. 1 player in the United States.
If AT&T fails to beat the lawsuit, it would have to pay T-Mobile parent Deutsche Telekom an estimated $6 billion in cash and other assets included in the original deal.
Details of AT&T's proposed settlement were not available, but it's expected to include pledges to maintain T-Mobile's relatively cheap mobile subscription programs, and asset sales.
AT&T may have to sell up to 25% associated with T-Mobile's business, including airwaves and customers, two sources said, to address the government's concern that just three companies would control 90% from the US wireless market if the merger goes through.
Bob Doyle, a previous antitrust enforcer now in private practice, said it would be difficult for AT&T to reach a settlement with the Justice Department as there would need to be divestitures on both the national and regional level.
While there may be several buyers for regional assets, the only possible buyers for national assets are Verizon Wireless with no. 3-ranked Sprint Nextel Corp -- which could cause another round of antitrust overview.
"Verizon's a no go. Sprint may be a no go also, inch said Doyle.
AT&T, led Chief Executive Randall Stephenson, declined to comment, referring questions to its previous statement it believed in the merits of its deal and planned to fight the actual government's suit.
JUDGE LIKES TO ACT QUICKLY
US District Judge Ellen Segal Huvelle within Washington, D. C., was selected at random to preside over the situation, one of the biggest antitrust court battles in years.
She has the reputation for speedy rulings, which would be welcome to AT&T compared with months as well as years of uncertainty. For Deutsche Telekom, it has tried for years to locate a way out of its T-Mobile business, and has no Plan B.
AT&T has requested an expedited hearing, and one source expects the case could go to court in 8 weeks.
The carrier and regulators had been in preliminary discussions over divestures prior to the Justice Department filed its 22-page lawsuit on Wednesday. In those talks, AT&T had agreed to divest up to 10% of T-Mobile assets.
"That was part of the frustration for the reason that AT&T expected that they would have had much more meaningful discussions and determine where everyone was, and whether they could close the gap, " the origin said.
AT&T wants another meeting with the Justice Department as soon as you possibly can, but "I don't know if and when a new meeting is planned, given yesterday's news, " said a person familiar with the discussions.
Nevertheless, the Justice Department could prefer a settlement to avoid the risk of losing the situation in court.
"It is always scary to go off to litigation. I guess there's a chance that the government could get cold feet, " stated Stephen Calkins, who teaches law at Wayne State University.
Antitrust regulators possess a mixed record in court. The Justice Department lost in 2004 when it tried to prevent Oracle Corp's purchase of PeopleSoft Inc. It also failed to prevent SunGard Data System Inc's buy of Comdisco Inc in 2001 -- an instance also presided over by Judge Huvelle.
AT&T's lead antitrust attorney shepherding this particular deal is Richard Rosen of Arnold & Porter LLP, a former head from the communications section of the Justice Department's antitrust division.
"He was the chief over there for many years and socializes with many of the staff over there. He's well known and respected, " said a source near to the AT&T talks with Justice.
Rosen was lead counsel in Cingular Wireless's $41 million buy of AT&T Wireless, as well as AT&T's buys of Dobson Marketing communications, Centennial Communications, and wireless properties divested by Verizon and Alltel.
Deutsche Telekom also offers antitrust star George Cary of Cleary Gottlieb Steen & Hamilton LLP, who argued for that US Federal Trade Commission in its successful fight against the Staples merging with Office Depot in 1997.
Since so few antitrust cases are litigated, Cary's achievement is unusual.
"He's one of the best. He's exceptional. George Cary may be the Lou Gehrig of antitrust, " said David Balto, a former FTC plan director now in private practice.