AT&T in 2012 ... ?

(NYS: T) sat on a wall
Its merger deal had a great fall
Can all of its dollars and all of its yen
Put AT&T back together again?

That, fellow Fools, is a good question. What was supposed to have been the telecom deal of 2011 has turned into a Humpty Dumpty-sized egg on the face of the nation's second largest wireless carrier. On Monday, the company finally accepted that its proposed $39 billion merger with Deutsche Telekom's T-Mobile USA unit didn't have a ghost of a chance of being approved by the Federal Communications Commission, even if it could somehow settle the Department of Justice's antitrust lawsuit.

There's no use crying over spilt spectrum, even though that's what AT&T did in Monday's announcement: "The AT&T and T-Mobile USA combination would have offered an interim solution to ... spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled."

AT&T had hoped to increase the number of its radio frequency licenses with the T-Mobile merger. Instead, as part of a breakup fee in the agreement, AT&T will have to fork over $3 billion worth of spectrum and roaming agreements to T-Mobile, along with $3 billion in cash. The company had already announced a $4 billion fourth-quarter (tax-deductable) charge to account for some of that penalty.

Hasta la vista, 2011.

Wilkommen, bienvenue, welcome, 2012
So job No. 1 for AT&T in the new year will be to get hold of additional spectrum just to tread water. It could buy some from DISH Network (NAS: DISH) , which has been accumulating it in the hopes of building its own wireless network. But Lightreading reports that analysts at UBS Research believe that the FCC would "seek to block Dish from selling ... to AT&T."

Besides, DISH was reported to be eyeing T-Mobile's spectrum for itself if the merger happened to fall through.

What's left, then? There's LightSquared, but even if it could get past its GPS interference problems, it still has an agreement in place with Sprint Nextel (NYS: S) . Clearwire (NAS: CLWR) also has contractual obligations with Sprint. Somehow, I can't see Sprint losing any sleep over playing keep-away with its spectrum when it comes to its nemesis, AT&T.

What about the spectrum that a consortium of cable companies called SpectrumCo had been hoarding for years? Afraid not, because earlier this month three of those companies -- Comcast, Time Warner Cable (NYS: TWC) , and Bright House Networks -- sold their frequencies to Verizon (NYS: VZ) for $3.6 billion. That deal also made for more competition for AT&T, because those cable companies will gain the rights to resell Verizon's wireless services. And if that wasn't enough, Verizon also got hold of $315 million worth of spectrum from Cox Communications.

AT&T does have something on the table. It's waiting for the FCC to pass its deal to buy $1.9 billion worth of spectrum from Qualcomm (NAS: QCOM) . But as one analyst put it to Dow Jones Newswire, there are very few spectrum options left on the table for AT&T. "Verizon just ran off with the last pretty girl at the bar," said Craig Moffett of Sanford C. Bernstein.

LTE, here I come
The biggest reason AT&T is going to need as much spectrum as it can get is so it can catch up to Verizon in the race to smother the country with 4G LTE coverage. And Verizon seems to have quite a head start in that regard. Verizon's LTE network covers 179 cities across the country; AT&T's LTE network covers just 15 cities.

The coming year is definitely going to be challenging for AT&T, but it's certainly not in dire straits. As a matter of fact, the company just announced that it's upping its quarterly dividend by $0.01, a 2.3% increase. That's the company's 28th straight year of dividend increases. And there's enough cash and cash equivalents on AT&T's balance sheet at the end of the third quarter -- $10.76 billion -- to pay out the dividend and the merger breakup penalty.

So even though there will be plenty of challenges for the company going forward, I wouldn't run out and sell off your AT&T shares in a panic. After all, that 6% dividend yield can be quite effective as an anti-anxiety pill.

AT&T, along with many other telecom companies, has been a favorite of dividend investors for years. If you're looking for more ideas about great dividend stocks, The Motley Fool is offering a free report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." Investing in strong dividend paying stocks is the way to smooth out the highs and lows of a volatile market. Check it out -- it's free.

At the time thisarticle was published Fool contributorDan Radovskyowns shares of AT&T. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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