AT&T to FCC: Sez You!

AT&T (NYSE: T  ) attorneys were sure putting in the overtime last week. It wasn't until the wee hours of Thursday morning (Thanksgiving, to the rest of us) that the company withdrew its application to the Federal Communications Commission for approval of its merger with Deutsche Telekom's T-Mobile USA unit.

That hasty withdrawal was in response to the proposal late Tuesday by FCC Chairman Julius Genachowski that the commission should move the case in front of an administrative law judge. AT&T saw this as a likely disapproval of the deal and wanted to withdraw its application before the FCC commissioners had a chance to vote on the chairman's proposal.

Now, here's where it gets sticky. The FCC has suggested that it might allow AT&T to withdraw its application, but with prejudice. That means it might not allow the company to refile. This elicited a strong response in a statement Friday from AT&T's top lawyer, Wayne Watts:

We have every right to withdraw our merger from the F.C.C., and the F.C.C. has no right to stop us. Any suggestion the agency might do otherwise would be an abuse of procedure which we would immediately challenge in court.

Court sense
But AT&T already has a court date. This one in February to defend its proposed $39 billion acquisition against the Department of Justice's antitrust lawsuit. A combined AT&T and T-Mobile would create a carrier with a 43% share of the wireless marketplace, leaving current leader Verizon (NYSE: VZ  ) in second place with 31%, and Sprint Nextel (NYSE: S  ) in third with 16%.

AT&T's turkey day retreat from a potential FCC chopping block might be seen as an act of desperation in order to buy more time to work something out before they head to court. Bloomberg reported Friday that the company might try to come to a settlement with the DOJ by jettisoning up to 40% of T-Mobile's assets. Those could include customers, equipment, and the always-valuable wireless spectrum.

At least one of the second-tier carriers would welcome the opportunity of getting some of those resources. As my Foolish colleague Anders Bylund has reported, MetroPCS (NYSE: PCS  ) could be a customer at a possible AT&T yard sale. But that company, which is only one-third the size of T-Mobile, may not have the wherewithal to buy enough to make a difference.

The stakes are high, the prospects lowering
In the meantime, AT&T has not sounded optimistic about the odds of it pulling off its deal. Part of the bargain it reached with Deutsche Telekom back in March was that if the merger didn't go through, AT&T would forfeit a significant sum of money and resources to the seller. On Thursday, the company announced it was planning to take a $4 billion charge for this quarter, one that would go toward that breakup fee.

Any merger like this has to get past both the Department of Justice and the Federal Communications Commission. AT&T must be hoping that if it can somehow get past the DOJ's antitrust lawsuit, the deal won't smell so bad to the FCC.

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Fool contributor Dan Radovsky owns shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 28, 2011, at 7:16 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 28, 2011, at 7:17 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 28, 2011, at 7:17 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.

  • Report this Comment On November 28, 2011, at 7:17 PM, conradsands wrote:

    Bad idea on many levels …

    Pricing: Controlling approximately 80 percent of the market and 90 percent of its profits, the deal would give the Twin Bells significant, unchecked leverage to increase prices for consumers for voice and data.

    Last Mile Access: Control of most of our nation’s vast wireline infrastructure and the critical “last mile” offers the duopolists the ability to raise competitors’ costs, reduce their network quality and quash competitive alternatives.

    Choice: Next-generation smartphone and tablet manufacturers would be discouraged from partnering with any company other than AT&T or Verizon because of their massive scale, limiting choice to consumers and opportunity for manufacturers.

    Innovation: Content and application developers would lack incentive to create content for companies other than the Twin Bells, diminishing innovation and harming developers as well as the capital markets that fund them.

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