AT&T Regroups -- but Will It Matter?

When AT&T (NYSE: T  ) saw FCC commissioner Julius Genachowski unsheathing a rarely used weapon against unwanted radio-wave mergers, Ma Bell backed off to regroup.

AT&T and Deutsche Telekom have dropped their FCC application to transfer radio-spectrum licenses, but the companies plan to refile that crucial application when the time is right. In the meantime, the battle goes on to convince the DoJ, Sprint Nextel (NYSE: S  ) , and other deal critics that AT&T-Mobile is a good idea, and not at all a job-destroying, anticompetitive Faustian deal.

For the first time, AT&T admits that the merger might indeed fail: The telecom giant is taking a $4 billion charge in the current quarter to account for payment of the potential breakup fee. This is new.

Management would dearly love to keep that $4 billion in the bank, of course. Expect the reworked FCC application to show significant differences from the first version.

AT&T might sell some overlapping spectrum licenses to MetroPCS (NYSE: PCS  ) , Sprint, or a patchwork of regional networks such as Cincinnati Bell (NYSE: CBB  ) . That's a good start. In fact, it might cure the bulk of the FCC's objections, given the agency's radio-centric jurisdiction. If the telecoms simply wanted to avoid the torpedo that sank a blockbuster combination of DirecTV (Nasdaq: DTV  ) and EchoStar (Nasdaq: SATS  ) a decade ago, I guess it's mission accomplished.

But job losses should be a far bigger sticking point, and that one has little to do with the FCC. Bringing call centers back to the U.S. while chopping higher-paid heads in engineering, field installations, and other departments doesn't sound like high-quality job creation. In this economic climate with rampant unemployment, I wouldn't be surprised to see the White House stepping in with a veto if all the other checks and balances fail. And I don't know how AT&T would work around this huge issue without losing the biggest cost-control benefits of merging in the first place.

This action notwithstanding, I agree with AT&T's suddenly cautious accountants: Dead deal walking.

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Fool contributor Anders Bylund holds no position in any of the companies mentioned. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


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  • Report this Comment On November 25, 2011, at 8:01 PM, conradsands wrote:

    Consumers are finally noticing that AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon and AT&T (both in the top 5 for corporate lobbying) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to push the U.S. market into a wireless industry duopoly -- the American consumer. This is how AT&T and Verizon fashion themselves as brilliant … with their political use of money.

    Taking into account the whole U.S. market, a combination of AT&T and T-Mobile would increase the Herfindahl-Hirschman Index (HHI), a widely accepted measure of market concentration, to 3,216 from 2,848, according to a Bloomberg analysis. Any score above 2,500 indicates a highly concentrated market, and any increase of more than 200 points clearly enhances market power, according to federal guidelines.

    If this ridiculous deal goes through, Sprint will be the only low-priced post-paid national wireless carrier left in the United States. T-Mobile customers are already fleeing to Sprint because they know they won’t get low prices from AT&T or Verizon. But AT&T and Verizon are two of the top corporate lobbyists in the country, so beware of how things could “mysteriously” turn in this case.

    “It’s only a slight overstatement to say that if they weren’t going to block this one, the Justice Department might as well just throw the antitrust guidelines out the window,” said Herbert Hovenkamp, professor of law at the University of Iowa, who is considered by many to be the dean of American antitrust law. “This merger clearly seems to violate them.”

  • Report this Comment On November 25, 2011, at 8:01 PM, conradsands wrote:

    According to the report “Corporate Taxpayers & Corporate Tax Dodgers 2008-10,” two of the 25 companies with the largest total tax subsidies were AT&T at #2 ($14.5 billion) and Verizon at #3 ($12.3 billion). Also, there were 30 corporations that paid less than nothing in aggregate federal income taxes over the same period. These 30 companies, whose pretax U.S. profits totaled $160 billion over the three years, included Verizon. The report states the laws that allow this were not enacted in a vacuum, but rather were adopted in response to relentless corporate lobbying, threats and campaign support.

  • Report this Comment On November 25, 2011, at 8:01 PM, conradsands wrote:

    AT&T’s Dirty Money at Work …

    Snippets from CNN story …

    AT&T lobbyists push for T-Mobile deal

    For years, AT&T has been one of the biggest political and lobbying forces in Washington, D.C. Last year, it spent $15.3 million and had 93 lobbyists on its roster, including six former lawmakers. Germany's Deutsche Telekom spent $3 million on lobbying for T-Mobile USA in 2010, armed with 41 lobbyists and one former lawmaker.

    Many lawmakers have a personal interest in seeing AT&T do well. AT&T ranked as the sixth most popular investment among members of the House and Senate in 2009, the most recent year for which such data is available, according to the Center for Responsive Politics.

    And AT&T is considered a heavy hitter during campaign election cycles. In 2010, donors with links to the company made nearly $4 million in campaign contributions to candidates running for federal office.

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