Bloomberg News

AT&T Judge May End T-Mobile Merger Plan by Stopping U.S. Lawsuit

December 22, 2011

Dec. 10 (Bloomberg) -- AT&T Inc.’s plan to buy T-Mobile USA Inc. was placed in further jeopardy after a federal judge agreed to consider a request by the U.S. to postpone or dismiss its lawsuit seeking to block the deal.

Lawyers for AT&T and T-Mobile, saying the government’s suit against them had turned into their best hope to complete the transaction, urged U.S. District Judge Ellen Segal Huvelle in Washington to keep the case on track for a Feb. 13 trial. The U.S. argued the case may be moot after AT&T withdrew its merger application at the Federal Communications Commission.

A decision to dismiss or delay the Justice Department’s case would put the deal all but out of reach for AT&T. The company’s strategy for regulatory approval rests on winning a favorable court decision it could use at the FCC to argue that the transaction isn’t anticompetitive. Without such a ruling, AT&T has no chance of getting the deal done, T-Mobile’s lawyer, George Cary, told Huvelle at a hearing yesterday.

“If this case doesn’t go ahead, then the deal is over,” he said.

Huvelle, who scheduled a hearing for Dec. 15 on the government’s request, said she was concerned that without an FCC application in process it might be impossible to meet the deadline for the deal and the trial would be a waste of time.

‘Taxpayers’ Money’

“We don’t have any confidence that we are spending all this time and effort and the taxpayers’ money and that we’re not being spun,” Huvelle said. “The landscape has changed,” she said, pressing AT&T’s lawyers on whether completing the purchase by the contractual deadline of Sept. 20 is still realistic.

AT&T’s lawyer, Mark Hansen, told Huvelle that the company “wants its day in court.” AT&T would have to pay T-Mobile about $3 billion, as well as spectrum and other services worth about another $4 billion, according to analysts, if the transaction doesn’t close by Sept. 20.

Justice Department lawyer Joseph Wayland said the government will seek to put its suit on hold or withdraw it, while reserving the right to refile, because AT&T pulled back its FCC merger application. FCC approval is required to complete the transaction, he said. The fact that AT&T had an application before the FCC was among the reasons the department sued to block the deal in August, Wayland said.

Huvelle ordered the government to file its briefs by Dec. 13.

‘AT&T’s Bluff’

“By saying they will file to dismiss, the Justice Department is calling AT&T’s bluff,” said Andrew Gavil, an antitrust professor at Howard University School of Law in Washington. “They’re saying ‘You cannot maneuver us into litigation with you by withdrawing your application from the FCC.’”

Yesterday’s hearing marked AT&T’s first appearance in court since it pulled the FCC application on Nov. 24. The company abandoned its bid after the agency’s staff recommended the purchase be rejected and the chairman said he’d push for a review that could last a year. AT&T said it planned to focus on winning clearance from the Justice Department first or revising its proposal.

Cary, the T-Mobile lawyer, told Huvelle that the companies “have always contemplated” that an FCC decision follow a decision by the court. Cary said his client would use Huvelle’s ruling, assuming it was favorable, to win approval from the FCC.

‘Number of Ifs’

“That’s presumptuous,” Huvelle responded. “The number of ifs in that scenario are mind-boggling.”

She noted that her ruling might be appealed, further delaying a definitive decision. Huvelle also said that the FCC’s report on the transaction showed their concerns went beyond antitrust issues.

Hansen told Huvelle that the FCC “typically and traditionally” is guided by the court on antitrust issues.

Huvelle responded, “the only case where I find similarity is EchoStar, which fell apart.”

Huvelle oversaw the government’s 2002 lawsuit seeking to block EchoStar Communications Corp.’s proposed acquisition of Hughes Electronics Corp. That transaction, which also faced Justice Department and FCC objections, was called off after Huvelle ruled against EchoStar’s request for an expedited trial.

In seeking a trial of the government’s case, the companies in November 2002 told Huvelle that they “urgently needed judicial resolution” before the expiration of the merger agreement two months later. Without a deal, EchoStar told Huvelle it would be required to pay Hughes a $600 million termination fee.

Huvelle said AT&T’s arguments today gave her “déjà vu.”

‘Bit Unsettling’

“I find it a little bit unsettling being told when I would have to decide because you will lose billions,” Huvelle told AT&T’s lawyer.

The Justice Department sued Dallas-based AT&T and Deutsche Telekom AG’s T-Mobile unit on Aug. 31, saying a combination of the two companies would “substantially” reduce competition. Seven states and Puerto Rico joined the effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.

Sprint, the third-biggest U.S. wireless carrier, filed its antitrust lawsuit on Sept. 6, saying the proposed merger would weaken its ability to compete with AT&T, the second-biggest, and Verizon Communications Inc., the market leader.

Cellular South, based in Ridgeland, Mississippi, sued on Sept. 19, claiming the merger threatened to “substantially” cut competition.

Huvelle last month dismissed several claims in the suits by Overland Park, Kansas-based Sprint and Cellular South. She limited the cases to Sprint’s allegations regarding access to mobile devices and Cellular South’s complaints regarding roaming fees as well as devices.

No trial has been set for the Sprint and Cellular South cases. The parties agreed it should take place after the trial of the government’s case.

The government’s case is U.S. v. AT&T Inc., 1:11-cv-01560; Sprint’s case is Sprint Nextel Corp. v. AT&T Inc., 11-cv-01600; and Cellular South’s case is Cellular South Inc. v. AT&T Inc., 1:11-cv-01690, U.S. District Court, District of Columbia (Washington).

--Editors: Fred Strasser, Peter Blumberg

To contact the reporters on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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