Bloomberg News

AT&T Dealt Defeat on T-Mobile After $12 Million in Lobbying

September 01, 2011

(Updates share prices in 14th paragraph.)

Sept. 1 (Bloomberg) -- The U.S. move to block AT&T Inc.’s purchase of T-Mobile USA Inc. marks a rare Washington defeat for the largest U.S. phone company, a failure deal opponents called a triumph of antitrust analysis over lobbying muscle.

As it sought regulators’ blessing for the transaction, AT&T boosted lobbying spending by 30 percent to $11.7 million in the first six months of 2011 from the same period last year, according to Senate records. Its PAC gave $805,500 to federal candidates this year, more than any other company, according to the Center for Responsive Politics, a Washington research group.

The company’s lobbying strategy has been guided by 13-year company veteran Jim Cicconi, a Washington insider since serving in the Reagan White House. It produced letters to regulators from more than 70 members of Congress, multiple economic studies aimed at supporting the deal, and a pledge to preserve 5,000 jobs. Nonetheless, the Justice Department yesterday sued to halt the $39 billion deal, calling it harmful to competition.

AT&T “never understood that the facts were so bad that no amount of political pressure was going to make a difference,” Gigi Sohn, president of the Washington-based advocacy group Public Knowledge that opposes the deal, said in an interview with Bloomberg Government. “Kudos to the Justice Department and the Obama administration for keeping politics out of it.”

Andrew Lipman, a Washington-based communications lawyer with Bingham McCutchen LLP, said the Justice Department’s lawsuit is the first U.S. action he can recall seeking to block an AT&T merger in his 35 years of practice.

“The Justice Department is extremely independent,” Lipman said in an interview. “That’s historically been the case, and is especially the case in this administration.”

Volley of Calls

AT&T’s campaign in Washington began March 20 as the proposed purchase of the Deutsche Telekom AG unit was announced, with a volley of Sunday phone calls to members of the Federal Communications Commission, which hasn’t concluded its review.

In succeeding weeks, AT&T won the support of traditional Democratic constituencies including the Communications Workers of America and the International Association of Teamsters. Executives of Dallas-based AT&T testified twice to Congress.

The company hired three outside lobbying groups to work for the merger, and brought in former congressional aides. Congress, which doesn’t play a direct role in deal reviews, oversees the agencies vetting the transaction.

“They were employing both contributions and lobbying to smooth the way, but there is always a tension between the money and the merits,” Sheila Krumholz, executive director of the Center for Responsive Politics, said in an interview. “Cash constituents will not win if there is a perception of this being contrary to the public interest.”

Opponents’ Counterattack

As AT&T worked in Washington’s suites, opponents including Sprint Nextel Corp., Dish Network Corp., and the advocacy groups Consumers Union and Free Press told regulators the deal would lead to job losses and higher prices as competition diminished. The merger would combine the second- and fourth-largest carriers to create a new market leader ahead of Verizon Wireless, leaving Sprint a distant third.

Sprint spent less than one-sixth as much on lobbying as AT&T this year, distributing $1.9 million in the first six months of 2011, compared with $1.3 million in the same period a year earlier, according to Senate records. Sprint’s PAC gave $95,500 to federal candidates this year, according to the Center for Responsive Politics.

“There was a general perception that the political winds were blowing against” regulators’ rejecting the deal, Rebecca Arbogast, a Washington-based analyst with Stifel Nicolaus & Co., said in an interview. “It shows the political pressures didn’t outweigh the antitrust process.”

‘No Indication’

AT&T dropped 21 cents to $28.27 at 4 p.m. in New York Stock Exchange composite trading. Deutsche Telekom’s American depositary receipts lost 2 cents to $12.76. Each ADR represents one ordinary share. Overland Park, Kansas-based Sprint’s shares were off 2 cents at $3.74.

“There was no indication from the DOJ that this action was being contemplated,” Wayne Watts, the company’s general counsel, said in an e-mail. Michael Balmoris, a Washington-based AT&T spokesman, replied to questions about the company’s lobbying by referring to Watts’s statement. E-mail and phone requests for comment from Cicconi were not returned.

“We have been in constant dialogue with the parties,” Sharis Pozen, the acting head of the Justice Department’s antitrust division, said at a news conference yesterday. “We apprised them of our serious concerns.”

Liable to Pay

AT&T intends to “vigorously contest” the Justice Department’s move in court, Watts said.

Rejection by regulators would leave AT&T liable to pay Deutsche Telekom $3 billion and to give T-Mobile wireless spectrum, Deutsche Telekom has said.

AT&T acted from the start as if the deal’s approval were inevitable, Steven Berry, president of the Washington-based Rural Cellular Association, who opposes the merger, said in an interview.

Berry recalls working through weeks when AT&T’s advertisements touting the merger appeared seemingly daily in Washington trade publications and on television.

“There were days I’d say, ‘My goodness, am I going to break through?’” Berry said. His group represents more than 100 rural mobile-phone carriers including U.S. Cellular Corp. and Atlantic Tele-Network Inc.

--Editors: Michael Shepard, Allan Holmes

To contact the reporters on this story: Todd Shields in Washington at tshields3@bloomberg.net; Jonathan D. Salant in Washington at jsalant@bloomberg.net

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net


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