Bloomberg News

AT&T Faces New Roadblock on T-Mobile as FCC Seeks Hearing

November 23, 2011

(Updates with FCC saying deal would lead to job losses in seventh paragraph.)

Nov. 22 (Bloomberg) -- AT&T Inc.’s $39 billion bid for T- Mobile USA Inc. faces a new roadblock as Federal Communications Commission Chairman Julius Genachowski asked commissioners to send the proposal to an agency judge for a hearing.

The hearing, which could lead to a rejection of the deal, was proposed in an order that Genachowski offered today for consideration by the full FCC, officials who declined to be identified said in a briefing with reporters. Agency staff had found the proposed merger would significantly diminish wireless competition, one official said.

The hearing would take place after the resolution of a Justice Department court challenge to the transaction, the FCC officials said. The antitrust case is scheduled for trial in February.

AT&T is “reviewing all options,” Larry Solomon, senior vice president of corporate communications, said in an e-mailed statement.

“The FCC’s action today is disappointing,” Solomon said. “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.”

The purchase of Bellevue, Washington-based T-Mobile would eliminate one of four national U.S. wireless carriers. AT&T has said the transaction would help it bring wireless high-speed Internet service to more people.

‘Significant Obstacle’

The deal would lead to massive job losses as AT&T realizes savings, and the record at the FCC doesn’t show the merger would significantly spur the spread of wireless high-speed Internet service, an agency official said today. Wireless concentration would increase in 99 of 100 markets, the official said.

The FCC can designate a transaction for a hearing, which is akin to a trial, when it cannot find the deal is in the public interest. The administrative law judge presiding over the hearing delivers an initial decision that goes to agency commissioners for a vote. Commissioners may vote in coming days on Genachowski’s proposal.

“A hearing could go on for six to 12 months,” Andrew Lipman, a Washington-based partner with Bingham McCutchen LLP, said in an interview. “It’s certainly a significant obstacle and roadblock.”

Echostar Challenge

The last time the FCC designated a media merger for a hearing was in 2002, when the agency challenged Echostar Communications Corp.’s bid for fellow satellite company DirecTV, Lipman said. The companies dropped their bid, he said.

AT&T could continue to fight the Justice Department in federal court, and if it wins there seek a settlement to stave off an appeal of the verdict and to satisfy the FCC, Christopher King and David Kaut, analysts with Stifel Nicolaus & Co., said in a note to investors today.

The federal district court judge’s decision “would likely be pivotal,” Kaut and King wrote.

AT&T has agreed to pay T-Mobile parent Deutsche Telekom AG a breakup fee of $3 billion as well as spectrum if the deal collapses for a total package valued at as much as $7 billion.

“Too much money remains at stake for it to concede defeat and drop the deal,” Andrew Gavil, an antitrust professor at Howard University School of Law in Washington, said in an interview. “They’ve locked themselves in to take it to the mat.”

‘Serious Concerns’

AT&T shares closed down 28 cents at $28.08 in New York Stock Exchange trading. Shares of deal opponent Sprint Nextel Corp., the third-largest U.S. wireless carrier, rose 2 cents to $2.62.

Genachowski released a statement on Aug. 31, the day the Justice Department sued to block the deal, that cited “serious concerns about the impact of the proposed transaction on competition.”

Today’s action “means the FCC has found merit in our arguments that a combined AT&T/T-Mobile will create a duopoly in the wireless market which will increase prices for service and for handsets,” Andrew Jay Schwartzman, policy director of Media Access Project, a Washington-based nonprofit law firm, said in an e-mailed statement.

The FCC asked Dallas-based AT&T in an Oct. 13 letter for information about the deal’s effect on jobs, saying the carrier had provided “almost nothing” in response to an earlier query.

AT&T said in an Oct. 31 filing it would preserve more than 20,000 call-center jobs, offer alternative positions to non- management T-Mobile workers whose functions aren’t needed and bring 5,000 call-center positions to the U.S. from overseas.

Qualcomm Deal

Kansas Attorney General Derek Schmidt urged the FCC in a Nov. 21 letter to block the transaction if the agency finds that the deal will harm competition and raise prices for consumers. Sprint is based in Overland Park, Kansas.

“The proposed merger actually threatens that market competition,” Schmidt, a Republican, wrote in the three-page letter, which was addressed to Genachowski and posted on the FCC website. “Concentrated markets lack competitive balance; they give powerful players the ability to restrain competition and consumer choice.”

Separately, Genachowski asked commissioners today to allow AT&T to purchase airwaves from Qualcomm Inc., an official said. AT&T in December agreed to pay $1.93 billion for airwaves covering 300 million people from Qualcomm, which acquired the spectrum for a mobile-television service it later closed. Genachowski proposed conditions on the deal, said the official, who declined to offer details.

--With assistance from Sara Forden in Washington. Editors: Michael Shepard, Joe Winski

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net


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