By Gautham Nagesh - 07/22/11 10:00 AM EDT
AT&T’s proposed merger with T-Mobile USA, once seen as inevitable, hit some significant speed bumps this week.
Industry observers say the headwinds do not mean the merger won’t ultimately win regulatory approval, but the company is going to have to prove to Congress and to regulators that consumers won’t suffer under the deal.
“AT&T has a $3 billion payback to T-Mobile if this deal doesn’t go [through], so they have every motivation to make this happen,” said Rob Frieden, a professor of telecommunications and law at Penn State University. “If anything this motivates AT&T to double and redouble its outreach and its lobbying.”
The $39 billion acquisition met resistance in Congress for the first time this week when Sen. Herb Kohl (D-Wis.), the chairman of the Judiciary Committee’s Antitrust subcommittee, urged regulators to block it.
“Approval of this acquisition would also reverse the historic triumph of competition policy of three decades ago — the breaking up of the AT&T phone monopoly into numerous competitors, unleashing an explosion of innovation that led to such technologies as cell phones and the Internet,” Kohl wrote in a seven-page letter laying out his opposition.
The bad news for the company continued late Wednesday when the Federal Communications Commission stopped the clock on its review of the merger. The agency is waiting on AT&T to provide additional economic and engineering analysis of the potential benefits from combining the companies.
Conventional wisdom in the Beltway had held that the merger would sail through the regulatory process. AT&T’s deep pockets and army of lobbyists — paired with the support of organized labor — seemed to make government approval a mere formality.
But AT&T’s air of invincibility is fading as questions mount about a telecom merger that would leave more than 80 percent of the nation’s wireless market in the hands of two companies.
“I don’t know how you can view [Wednesday] as anything but a terrible day for AT&T,” said Gigi Sohn, president of Public Knowledge, which opposes the merger.
AT&T remains confident the government will eventually approve the transaction, but opponents have been buoyed by recent developments and point to statements from Democrats this week questioning the deal’s benefits.
Several lawmakers have invoked the breakup of the Ma Bell telephone monopoly in the 1980s in explaining their opposition to the deal, which would make AT&T and Verizon the dominant wireless players and leave Sprint a distant third.
“To replace the AT&T phone monopoly of the last century with a near-duopoly of AT&T and Verizon today would be harmful to consumers, contrary to antitrust law and not in the public interest under communications law,” Kohl wrote in his letter.
Rep. Edward Markey (D-Mass.) said the merger would be “an historic mistake.”
“It would turn back the clock to the early 1990s, when American ingenuity and innovation were stymied by a sluggish, analog cellular duopoly,” said Markey, arguing that subsequent legislation helped create new wireless providers and unleash a wave of innovation.
Markey joined Reps. Anna Eshoo (D-Calif.) and John Conyers Jr. (D-Mich.) this week in a letter urging the Federal Communications Commission (FCC) and the Department of Justice (DOJ) to closely scrutinize any promised benefits of the merger. The lawmakers warned the fusion of the firms would be a “troubling backward step” for public policy.
Conyers, who has been one of the most outspoken critics of the merger in Congress, said he appreciates the fact AT&T is the only unionized wireless carrier, but that he still believes the DOJ and the FCC must reject the proposal to protect consumers.
An AT&T spokesman said the firm is preparing new economic and engineering models to provide greater detail on the promised benefits of the deal, specifically on how combining the two networks will increase service and network capacity for customers while saving on costs.
“The facts also demonstrate that the consumer and public interest benefits are enormous,” said AT&T general counsel Wayne Watts. “These include better service in the form of fewer dropped calls, faster speeds and a better overall customer experience, more mobile broadband access for more Americans.”
The FCC said the new submissions are expected to be complex, so the agency has stopped the 180-day clock on the review until it has had time to look over the additional evidence. The delay is not expected to last more than a month or to slow down the review process significantly.
“Because this information, which we will submit next week, is detailed, we are not surprised that the FCC will take the time it needs to thoroughly understand our submission,” AT&T told The Hill in a statement. “We do not expect this will adversely impact the timeframe for approval of our transaction.”
The FCC and the DOJ are both reviewing the deal. Justice can sue to block it under the Clayton Antitrust Act, while the FCC can launch an administrative proceeding if it decides the merger is contrary to the public interest. The FCC can also approve the merger outright or with conditions, such as those attached to the NBC Universal-Comcast merger last year.
Opponents argue there aren’t any conditions that regulators could pin on the deal to prevent it from stifling competition in the wireless market.
Sprint spokesman John Taylor said AT&T caught most stakeholders by surprise when it announced the merger on March 20; thanks to its formidable presence in Washington, the move enabled the telecom giant to create a sense of inevitability around the transaction. But he noted the issue will be handled by law enforcement, not legislation, and said a flurry of lobbying on the merger has only served to raise more questions.
“I think what you’re seeing on Capitol Hill among staffers following telecom issues — as they have learned more about this transaction, they have more questions. As they get more answers, they like this deal less and less,” Taylor said.
Sprint has ramped up its lobbying significantly in opposition to the deal. CEO Dan Hesse admitted last month that if the merger is approved, Sprint would become ripe for a takeover.
AT&T’s aggressive push to rally support for the deal has shown results. A large number of community organizations, civil-rights groups and 26 state governors have written in support of the merger, and the firm has a team of lobbyists working to promote the deal on Capitol Hill.
But Public Knowledge Legal Director Harold Feld suggested some of AT&T’s tactics have backfired. He noted the recent controversy involving the Gay and Lesbian Alliance Against Defamation, which endorsed the merger and then withdrew it after a shakeup in management.