Dead mergers


AT&T’s response to this development was to try to bury the evidence. The FCC informed AT&T of its decision last Tuesday, and by Wednesday night AT&T had announced it was pulling its merger application to “focus” on beating the Department of Justice in court. Yanking the FCC application in the face of an impending rejection is an attempt to ensure the FCC’s decision is never made public or introduced into evidence in the Department of Justice’s case.

In yet another bid to resuscitate this deal, AT&T is floating the notion that it could divest up to 40 percent of T-Mobile’s assets and customers to small prepaid carriers like Cricket and MetroPCS. But the Department of Justice ignored AT&T’s empty rhetoric about “settlement” offers after announcing its lawsuit and will be just as unmoved by renewed talk of compromise.

However you slice this deal, the simple fact remains: Eliminating one of the national post-paid wireless carriers would leave AT&T and Verizon in control of nearly 80 percent of the wireless market. With such dominance, these carriers could raise prices and restrain innovation without having to worry that a competitor could undercut them or develop better technology.

AT&T is busy trying to spin its divestiture offer as a huge concession. But divestiture would produce nearly the same result as the bigger merger by eliminating T-Mobile as a nationwide competitor and cementing the AT&T-Verizon duopoly.

AT&T's service territory largely overlaps with T-Mobile's, and it was already planning on shuttering a substantial portion of T-Mobile's assets to achieve the deal’s cost savings through “synergy.” Divestiture is just another way for AT&T to move its original plan forward while taking out the competition at T-Mobile and scooping up its customers.

The Wall Street Journal reports that past wireless industry divestitures left tens of thousands of customers without reliable service, forcing them to sign up with carriers they didn’t want that were unprepared for a large influx of new customers. This is the exact result the Department of Justice is trying to avoid.

So why does AT&T press on? Even in the unlikely event it prevails against the Department of Justice at trial, it still has to get the FCC’s approval, something made even less likely thanks to AT&T’s attempt to withdraw its application and bury the FCC’s critique. 

What’s more, the FCC analysis should erode any remaining political support for the deal, because the evidence shows that the merger would lead to serious layoffs — not the job gains and broadband-deployment benefits AT&T touted in its ad campaign.

AT&T’s unwillingness to throw in the towel stems from the $4 billion break-up fee (in cash and spectrum) that it just told securities regulators it is likely to have to pay T-Mobile. This amount represents about 20 percent of the net profit AT&T made last year. It would hurt AT&T’s bottom line — and strengthen T-Mobile. 

Merger proponents repeatedly but incorrectly claimed that T-Mobile had no path to true 4G technology. But an infusion of $4 billion in cash and new spectrum would be more than enough to position T-Mobile as a viable competitor over the long haul.

This is why AT&T is trying to revive this corpse. As long as the deal stays on the table, T-Mobile is incapable of forging ahead to grow its own network and services. And that’s just fine with AT&T, even if it means pretending there’s still life in this zombie merger.

Craig Aaron is the president and CEO of Free Press, and Matt Wood is the policy director. Free Press is a national, nonpartisan, nonprofit working to reform the media.

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