AT&T and Leap Wireless secretly planning side deal, says report

AT&T is "secretly working on an audacious 11th-hour deal" to save its $39 billion bid to buy T-Mobile, according to Deal Book's Andrew Ross Sorkin.

AT&T said early on that it would be willing to sell off a considerable portion of the T-Mobile assets it acquires in the deal, to get it rubber-stamped. Working along those lines to placate the Justice Department, which has filed a suit against the deal, AT&T is "knee deep" in a deal with Leap Wireless, wrote Sorkin, that would give AT&T enough of what it needs, while boosting Leap into the No. 4 carrier spot, currently occupied by T-Mobile.

Leap owns the contract-free Cricket brand, and on Nov. 1 announced plans to begin rolling out LTE later this year and reaching approximately 25 million people by the end of 2012. Over the next two to three years, CFO Walter Berger said during the carrier's third-quarter earnings call, Leap planned to have two-thirds of its network footprint covered (CP: Cricket parent Leap Wireless to trial LTE this year, go big in 2012) with LTE.

While Leap has enough spectrum for its launch, said Berger, "from time to time we will continue to evaluate opportunities in the marketplace to improve our spectrum position."

AT&T withdrew its license transfer applications with the Federal Communications Commission (FCC) on Thanksgiving Day and announced in a statement that it was willing to pay the pledged $4 billion in break-up fees to T-Mobile parent company Deutsche Telekom, but would still very much pursue the deal (CP: AT&T pulls back on T-Mobile deal, Sprint loses either way).

Sorkin, in his article, raises an eyebrow at some AT&T decisions and the very expensive advice that led to them.

"According to one participant in a board meeting, a banker advised the company that the risk of losing the deal and paying the breakup fee was worth taking because it would also probably distract Sprint and make T-Mobile a lesser competitor," Sorkin wrote. That calculus, he added, "may sound self-serving: the bankers traditionally are paid only if the deal is consummated, so for the banker the risk is always worth taking."

Unlike the bankers, AT&T's lawyers get paid either way, and charging by the hour, have extra incentive to push the deal through, said Sorkin.

The deal seemed audacious to everyone from the start — knowing this, an hour after it was announced, AT&T CEO Randall Stephenson called Sorkin at home, to defend it. But according to people in the know, Sorkin added, it was AT&T's lawyers, Arnold & Porter and Crowell & Moring, that gave it a 60-70% likelihood for success.