AT&T concluded Monday its campaign for T-Mobile had been a failure, abandoning plans for the purchase and taking a pretax charge of $4 billion to reflect cash payments and other considerations due to Deutsche Telekom AG, T-Mobile's parent.

The decision came after the judge in the Justice Department's lawsuit to block the deal agreed on Dec. 12 to put the case on hold as the phone company decided whether or how to revise the transaction. The delay may have made it more difficult for AT&T to close the deal by the Sept. 20 deadline.

The Justice Department today dismissed its lawsuit against AT&T with a one-sentence motion filed in federal court in Washington. The states that joined the government's case also signed onto the dismissal.

The acquisition's prospects looked brighter when AT&T announced the deal in March, telecommunications analysts said. The T-Mobile bid capped a period of acquisitions in the communications industry that stretched back to the 1990s.

In 2005, SBC Communications Inc. bought AT&T for $22 billion, renaming the combined entity AT&T Inc. Two years later, AT&T bought Dobson Communications for $2.8 billion, and last year the company agreed to buy radio spectrum from Qualcomm Inc. for $1.93 billion.

Even as President Barack Obama said he would tighten government regulation and antitrust enforcement, in particular, the administration had shown no appetite to try to block significant deals.

Christine Varney, head of the Justice Department's Antitrust Division until August, had been willing to approve controversial acquisitions with conditions.

Open to Compromise

That made the trust-busting unit more of a regulator and open to compromise, according to Bert Foer, the president of the American Antitrust Institute in Washington. Deals approved, with conditions, in the past two years included Google's $700 million purchase of ITA Software Inc., a maker of travel information software, Comcast Corp.'s purchase of NBC Universal in January and Ticketmaster Entertainment Inc.'s merger with Live Nation Inc. in January 2010.

During the Bush administration, the department didn't file a single monopolization case and the number of investigations dropped to eight from an annual average of 12 during the Clinton administration, according to the American Antitrust Institute.

"It's a mistake to rely on the Justice Department and FCC to be wooden agencies that are slow to respond and don't know how to dance," said Allen Grunes, a lawyer for Dish Network Corp., which opposed the deal. "Once the department decides to litigate, its goal is to win, just like anyone else."

AT&T had assembled an experienced team to ease the T-Mobile deal toward approval. D. Wayne Watts, AT&T's general counsel, had overseen or worked on mergers and acquisitions involving AT&T and its predecessor SBC since 1995, according to AT&T's website.

For outside counsel, AT&T turned to Richard Rosen, a partner at Arnold & Porter LLP in Washington. A former Justice Department official, Rosen had represented AT&T and SBC Communications in several acquisitions, including AT&T's acquisition of Cingular Wireless and AT&T's Dobson purchase.

T-Mobile hired George Cary, former deputy director of the Federal Trade Commission's Bureau of Competition. As a Washington-based lawyer at Cleary Gottlieb Steen & Hamilton LLP, Cary represented Dow Chemical Co. in its purchase of Union Carbide. He also represented Time Warner Inc. in its merger with AOL Inc. and SmithKline Beecham Ltd. in its merger with Glaxo Wellcome PLC.

'Smartest Antitrust Lawyers'

"Rich and George are two of the smartest antitrust lawyers in the country," Steven Newborn, an antitrust partner at Weil Gotshal & Manges LLP, said in an interview. "I'm certain their advice to AT&T and T-Mobile was that this merger was going to run into deep, deep headwinds."

Perennially one of the biggest spenders on lobbying, AT&T revved up its effort to build public support for the T-Mobile purchase. The company raised its lobbying expenditures 28 percent to $16 million from Jan. 1 through Sept. 30, compared with $12.5 million for the same period last year.

T-Mobile boosted its spending by 65 percent, to $2.8 million during the first nine months of 2011 from $1.7 million in 2010, according to filings.

The groups that AT&T mobilized to push for the deal stretched from the United States Cattlemen's Association to the Louisiana Ballooning Foundation.

Lawmakers were feted at Washington restaurants offering $52 steaks and a $15 "Lobbyist Libation" made of gin and cucumber puree.

Former FCC Chairman Richard Wiley said he called four of five FCC commissioners on Deutsche Telekom's behalf on March 20 before the deal was announced. On the same day, AT&T Chief Executive Officer Randall Stephenson spoke with FCC Chairman Julius Genachowski, said an agency official who declined to be identified because the contact hasn't been public.

There were signs the deal was in trouble early on, lawyers and analysts said. The Justice Department sent out its demand for more information, known as a second request, 10 days before it normally did in such cases, a person familiar with the matter said. The FCC hired for the case Renata Hesse, who had represented the Justice Department in its failed attempt to block Oracle Corp.'s acquisition of Peoplesoft Inc.

Still, AT&T officials didn't pick up on the signals. On Aug. 30, Justice Department officials met with AT&T and T-Mobile lawyers, hoping — and failing — to get a detailed remedy that would address their concerns about the deal. The next morning, Stephenson said in a television interview that he expected the acquisition to be approved in the first quarter of 2012.

Lawsuit Filed

An hour later, his lawyers received a call from the Justice Department that the government was suing to block the transaction.

The Justice Department then hired Glenn Pomerantz, a Los Angeles-based partner at Munger, Tolles & Olson LLP, to bolster its trial team.

AT&T proposed to the Justice Department several ways to divest T-Mobile assets to address the government's concerns that the deal would hurt competition in the wireless market, two people familiar with the matter said. Eventually, the company realized the department's demand for divestment was too much to make the acquisition worthwhile, said the people, who asked for anonymity because they lacked authorization to speak publicly.

Last month, the FCC weighed in and said AT&T had failed to demonstrate the public benefits of the acquisition. In response, AT&T pulled its application for the agency's approval of the purchase.

U.S. District Judge Ellen Segal Huvelle said by withdrawing the application AT&T might have made it impossible to meet the deadline for the deal and a trial would be a waste of time. She responded to AT&T's lawyers' argument that they needed a court victory to go back to the FCC by saying she wanted to make sure "we're not being spun."

AT&T began to decide there were too many barriers to getting the deal done, a person familiar with the matter said.

"They couldn't imagine regulators actually standing up to them, since it had been so long since they had seen it," Craig Aaron, president of the policy group Free Press, said in an interview.

Bloomberg News

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