FCC chairman calls for administrative hearing on AT&T/T-Mobile deal

Federal Communications Commission (FCC) Chairman Julius Genachowski on Tuesday called for an administrative hearing to review AT&T's planned acquisition of T-Mobile.

The move is another devastating setback for the $39 billion deal, following the Justice Department's decision in August to try and block the merger in the courts on antitrust grounds.

FCC officials said on a conference call with reporters that after reviewing thousands of documents, they were unable to determine whether the deal would be in the public's interest.

The officials said the merger would result in an unprecedented concentration of market power in the hands of AT&T and dismissed AT&T's claims that it would create thousands of jobs and improve the company’s wireless network. Instead, they determined the deal would likely cause massive job cuts as the two firms merged their operations.  

The deal would make AT&T the nation's largest wireless carrier and reduce the number of national firms from four to three.

AT&T slammed the FCC's decision and accused the regulatory agency of hampering economic growth, echoing a common Republican criticism of the Obama administration.

"The FCC’s action today is disappointing. It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the US economy desperately needs both," Larry Solomon, senior vice president of corporate communications for AT&T, said in a statement. "At this time, we are reviewing all options."

Genachowski is circulating the proposed order with the other commissioners. The full commission must vote to send the matter to the administrative law judge.

Unlike the Justice Department's case, which will only focus on whether the merger would "substantially" reduce competition in the wireless market, the FCC has the authority to block the deal if it is not in the public's interest.

The FCC officials said the administrative hearing would take place following the Justice Department's court proceeding in February on blocking the deal.

The FCC hearing would be similar to a trial, featuring witnesses and rules of evidence. An FCC official said a hearing would likely take months to complete, not weeks.

AT&T would have the burden to prove that the merger benefits the public.

After reviewing the case, the administrative judge would make a ruling on whether to allow the deal. The full commission would then vote on the recommendation.

If the FCC votes to block the merger, AT&T can appeal the decision in federal court.

AT&T is contractually obligated to pay T-Mobile $3 billion in cash, along with spectrum and other incentives, if the deal collapses. The merger was first announced in March.

Sprint, which has also sued to block the merger of its rivals, said the evidence "more than justifies" the hearing. 

"We appreciate Chairman Genachowski’s leadership on this issue and look forward to the FCC moving quickly to adopt a strong hearing designation order," Vonya McCann, Sprint’s vice president of government affairs, said in a statement.

Consumer advocacy groups, which have been lobbying to kill the deal, also celebrated the news.

"Chairman Genachowski is to be applauded for standing up to AT&T's lobbying machine and moving forward to a hearing designation," Public Knowledge President Gigi Sohn said. "We hope that the other Commissioners will follow the Chairman's lead and move swiftly to vote the hearing designation order."

Free Press urged AT&T to give up on the deal. 

"The Department of Justice and the FCC both agree that this merger is a bad deal, and it’s time for AT&T to walk away,” Free Press President Craig Aaron said in a statement.

In a small bit of good news for AT&T, Genachowski proposed allowing AT&T to purchase spectrum licenses from Qualcomm on Tuesday. The deal would be subject to conditions, but FCC officials declined to discuss the specifics of the proposed order.

The Wall Street Journal first reported news of the administrative hearing.

—This story was updated at 5:02 p.m.