AT&T announced it would no longer pursue its $39 billion bid to acquire T-Mobile USA, citing government opposition, CNBC reports. As a result, AT&T must hand over $4 billion in cash and other assets to T-Mobile as a breakup fee. Deutsche Telekom, T-Mobile’s parent company, said it will return to reporting T-Mobile USA as part of its continuing operations and that its group forecast for 2011 of an expected earnings before interest, tax, depreciation and amortization (EBITDA) of around €19.1 billion (U.S.$24.86 billion) would remained unchanged.

The merger had been on shaky ground for a while, with the U.S. Department of Justice pursuing an antitrust trial over the deal and the FCC issuing a report against the merger, prompting AT&T to drop its bid for FCC approval. The deal simply could not pass muster, as Yankee Group predicted in its August 2011 report, “AT&T/T-Mobile Merger: More Market Concentration, Less Choice, Higher Prices.”

“While this deal made sense as a way for AT&T to improve its spectrum position, AT&T just wasn’t able to refute the data, which showed that this merger would have created excessive market concentration and higher prices.” said Carl Howe, research director at Yankee Group. “Now that this deal is officially dead, the two companies must compete separately. The good news is that both AT&T and T-Mobile have viable options to thrive in the market; they just won’t have the comfort of being one of two companies splitting the U.S. wireless market. ”

Yankee Group clients can read details about the options open to AT&T and T-Mobile in our post-deal report “What’s Next for AT&T and T-Mobile?”