T-Mobile and AT&T: What’s $2 Billion Among Friends?

You say “po-TAY-to,” I say “po-TAH-to.” But in the case of the T-Mobile USA deal’s breakup fee, it’s a very big root vegetable.

In announcing on Monday that it was ending the $39 billion takeover attempt, AT&T said it would pay T-Mobile’s parent, Deutsche Telekom, a $4 billion breakup fee. But on Tuesday morning, Deutsche Telekom officials placed the value of the fee at a significantly higher $6 billion.

What’s behind the wide gap between the two numbers? As it turns out, it’s a matter of accounting.

The fee comprises both $3 billion in cash and cellular airwaves, known in the industry as spectrum. It is the latter that accounts for the divergence. AT&T is using the book value of the spectrum, which is about $1 billion, people briefed on the matter told DealBook. But Deutsche Telekom is citing the market value of the spectrum, which it calculates at about $3 billion.

AT&T and T-Mobile have also agreed to a seven-year roaming agreement, improving T-Mobile’s coverage in 128 cities. Deutsche Telekom has assigned some financial value to that pact, while AT&T contends that it nets out to about zero, these people said.

For what it’s worth, AT&T has already said that it would take a $4 billion accounting charge in the fourth quarter to reflect the breakup fee. And in some small solace for the company’s investors, the after-tax impact will be about $1.5 billion, or two months’ worth of the company’s cash flow.

Still, that is not quite the same as having completed what would have been the biggest deal of the year, nor does it erase the ignominy of paying one of the biggest breakup fees on record. But when one is in AT&T’s position, it is reasonable to take what one can get.