On Nov. 22, the Federal Communications Commission delivered bad news to AT&T (T). The commission had decided to subject the company’s planned merger with T-Mobile to an administrative hearing, a sign that it was prepared to block the deal because it might stifle competition. The next day, AT&T and Deutsche Telekom (DTE:GR), T-Mobile’s parent company, withdrew their applications. AT&T continues to press on and hopes to complete the merger “very quickly,” the company’s Chief Financial Officer John Stephens said at a media conference in New York on Dec. 7. That’s unlikely, given a pending lawsuit filed by the Justice Dept. and stiff opposition from FCC economists and engineers. All of which raises an interesting question: How did a company with the well-practiced lobbying prowess of AT&T lose this one?
In an unusual gesture, the FCC put out a 111-page public report airing its opposition to the merger. AT&T had claimed that it needed the deal to build out high-speed wireless Internet access. The FCC cited company documents that the commission says contradict AT&T’s argument. The economic and engineering models that accompanied the merger application, the commission said, “raise substantial and material questions of fact.” By releasing its report, the FCC may have provided documentary support to Justice Dept. attorneys, who in August sued to block the merger as anti-competitive. “I view it as a show of solidarity with the Department of Justice,” says Craig Moffett, a telecom analyst for Sanford C. Bernstein (AB).
AT&T public policy chief James W. Cicconi posted a statement on a company blog after the FCC released its findings, accusing the commission of “cherry-picking” data and saying its analysis “willfully ignores” important facts. Cicconi said the FCC staff failed to account for the secondary job creation that comes with wireless broadband expansion, and that it didn’t acknowledge competition from smaller, regional carriers. “This has not been our past experience with the agency,” he wrote, adding that AT&T expects “better in the future.”
Cicconi’s right about the past. The company’s aggressive lobbying has often produced much more favorable results. In 2010 the FCC was preparing rules on “net neutrality,” governing whether Internet service providers could restrict traffic over their networks. AT&T was against the rules altogether but in particular wanted to protect its wireless business from regulation. That year, 245 House members—including 233 beneficiaries of AT&T’s political action committee—wrote letters to the FCC saying its plans were off base.
While Google (GOOG), Verizon, and other companies had a stake in the outcome, no one got as much face time with the commission as Cicconi, who met with the FCC’s chief of staff six times in the month before the rules were released. The FCC ultimately decided in December 2010 to grant an exception for wireless Net access, a victory for AT&T. Cicconi’s department usually sends cookies to the commission as a holiday gift. Last year AT&T sent cupcakes—133 boxes of them, according to Public Knowledge, a digital rights advocacy group.
Julius Genachowski, the FCC’s chairman, said at a news conference on Nov. 30, 2010, that net neutrality discussions brought together the “broadest possible array of stakeholders.” That’s D.C.-speak for “business got a seat at the table,” and it’s a fair description of how the FCC has traditionally worked. In theory the FCC is an independent body of experts. Congress has often been willing to lean on the agency through its power over commission appointments and budgets. So the industry always knows it can work Congress for a better deal if it senses opposition to its wishes.
When AT&T announced its plans to acquire T-Mobile in March 2011, it followed its usual script. It spent $11.7 million on lobbying in the first six months of the year—a 30 percent increase over 2010—and hired 18 outside firms to help push for the merger. The company’s political action committee has given $1.7 million to federal candidates and political parties this year, more than all but one other corporate PAC. The day it announced its plans, AT&T held an investor teleconference in which executives explained how the merger would help the company extend wireless broadband to 95 percent of Americans—a goal of the Obama Administration. AT&T also won support for the merger from the Communications Workers of America and the AFL-CIO. This time the old playbook didn’t work.
The FCC says its move doesn’t signal a change in its long-term approach with telecom companies. But even if halting the merger was a one-off decision, by releasing its report the agency indicated that it, too, can flex its muscles.
AT&T spokeswoman Claudia Jones says the FCC and AT&T have reached consensus in the past, and the company hopes to do so again. Will AT&T send cupcakes to the commission again this holiday season? Jones has no comment.