AT&T will present a proposal to U.S. antitrust regulators to salvage its $39 billion T-Mobile USA deal, sources say.
The No. 2 U.S. wireless service provider is prepared to make concessions to address concerns that the T-Mobile deal is anti-competitive and could cause wireless prices to rise.
This will allow AT&T to try to find a settlement before a court battle takes place against the Justice Department.
"AT&T is pretty determined that they can find a solution, and they are pretty confident," one of the sources said on condition of anonymity.
The U.S. government has sued to block AT&T's purchase of T-Mobile USA, a deal that would vault the combined company above Verizon Wireless as the No. 1 player in the country.
If AT&T fails to defeat the lawsuit, it would have to pay T-Mobile parent Deutsche Telekom an estimated $6 billion in cash and other assets as part of the original deal.
Details of AT&T's proposed settlement were not available, but it is expected to include pledges to maintain T-Mobile's relatively cheap mobile subscription plans, and asset sales.
AT&T may have to sell up to 25 per cent of T-Mobile's business, including airwaves and customers, two sources said, to address the government's concern that just three companies would control 90 per cent of the U.S. wireless market if the merger goes through.
Bob Doyle, a former 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 have to be divestitures on both the national and regional level.
While there might be several buyers for regional assets, the only possible buyers for national assets are Verizon Wireless and No. 3-ranked Sprint Nextel, which could cause another round of antitrust scrutiny.
"Verizon's a no go. Sprint may be a no go also," said Doyle.
AT&T, led by chief executive Randall Stephenson, declined to comment, referring questions to its previous statement that it believed in the merits of its deal and planned to fight the government's suit.
U.S. District Judge Ellen Segal Huvelle in Washington, D.C., was selected at random to preside over the case, one of the biggest antitrust court battles in years.
She has a reputation for speedy rulings, which would be welcome to AT&T compared with months or even years of uncertainty. For Deutsche Telekom, it has tried for years to find a way out of its T-Mobile business, and has no Plan B.
AT&T has asked for an expedited hearing, and one source expects the case could go to court in two months.
The carrier and regulators had been in preliminary discussions over divestures before the Justice Department filed its 22-page lawsuit, and during the talks AT&T had offered to divest up to 10 per cent of T-Mobile assets.
"That was part of the frustration in that AT&T expected that they would have had much more meaningful discussions and figure out where everyone was, and whether they could close the gap," the source said.
AT&T wants another meeting with the Justice Department as soon as possible, but "I don't know if and when a new meeting is scheduled, given yesterday's news," said a person familiar with the discussions.
Antitrust regulators have a mixed record in court and the Justice Department could still prefer a settlement to avoid the risk of losing the case in court.
It lost a 2004 case in which it tried to stop Oracle's purchase of PeopleSoft, and also failed to prevent SunGard Data System's buy of Comdisco in 2001 - a case also presided over by Judge Huvelle.
AT&T's lead antitrust attorney shepherding this deal is Richard Rosen of Arnold & Porter LLP, a former head of the communications section of the Justice Department's antitrust division.
"He was the chief over there for many years and socializes with a lot of the staff over there. He's well known and respected," said a source close to the AT&T talks with Justice.
Rosen was lead counsel in Cingular Wireless's $41 billion buy of AT&T Wireless, as well as AT&T's buys of Dobson Communications, Centennial Communications, and wireless properties divested by Verizon and Alltel.
Deutsche Telekom also has antitrust star George Cary of Cleary Gottlieb Steen & Hamilton LLP, who argued for the U.S. Federal Trade Commission in its successful fight against the Staples merger with Office Depot in 1997.
Since so few antitrust cases are litigated, Cary's success is unusual.
"He's one of the best. He's exceptional," said David Balto, a former FTC policy director now in private practice.