Commentary

FCC Adds Static To Proposed AT&T, T-Mobile Deal

Is it just another snag in an ambitious deal? Or is it the death knell for AT&T’s proposed purchase of T-Mobile USA from Deutsche Telekom for $39 billion?

Saying that that a combined company would significantly diminish competition and lead to a massive loss of jobs, Federal Communications Commission chairman Julius Genachowski sent a draft order to his four fellow commissioners recommending that an administrative law judge review the deal. Expectations are that the two fellow Democrats on the panel will agree with Genachowski.

“The decision puts another large roadblock in front of AT&T, the nation’s second-largest wireless phone company, in its effort to buy T-Mobile, the fourth-largest carrier, writes the New York Times’ Edward Wyatt.“In August, the Justice Department filed a federal antitrust lawsuit to block the merger, saying it would stifle competition.”

Comparing the FCC’s action to unsportsmanlike conduct in a friendly match on the gridiron, Mizuho analyst Michael Nelson tells Reuters "it's like the FCC is piling on to the DOJ's blocking of the deal." And analysts at Stifel Nicolaus say "such an extended FCC review could put added pressure on T-Mobile to seek to exit the merger."

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It would be a costly departure for AT&T if it takes the lead. It's “on the hook,” as the Wall Street Journal’s Amy Schatz puts it, to pay Deutsche Telekom “a breakup fee of $3 billion plus airwaves and other rights worth an additional $3 billion or so.”

But there are potential costs involved in duking it out at the bottom of the pile, too, asBernstein analyst Craig Moffett makes clear. "AT&T still has to do business with these agencies going forward, so there is a political cost to pursuing this to the bitter end," he says.

Leaning toward the death-knell interpretation, CNET’s Marguerite Reardon writes that “the FCC chairman's bold stance against the merger is just one more nail in what is looking more and more like a coffin for AT&T's deal to buy T-Mobile.”

Reardon points out that several states attorneys general have also filed suits to block the merger. They “aren't buying AT&T's arguments that it will create jobs or speed up deployment of their 4G network,” she writes. “And rivals Sprint Nextel and Cellular South have also filed suits to block the merger.”

One commenter to her story finds the governmental bodies’ involvement in the deal a “dismal” development. “The more the US economy resembles the USSR -- with decisions made by centralized bureaucrats -- the less productive the country becomes. In the past few years the number of Americans employed by governments has surpassed the number employed in manufacturing,” writes “nicmart.”

Larry Solomon, AT&T’s SVP for corporate communications, concurs in principle, calling the FCC’s action “disappointing,” according to an AP report. “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 U.S. economy desperately needs both,” he says in a statement. “At this time, we are reviewing all options.”

“The decision disappoints because it doesn’t take into account the deal’s clear advantages for the U.S. market and economy,” Philipp Kornstaedt, a spokesman for Deutsche Telekom says. “We’re now analyzing the new situation together with AT&T.”

Some constituencies that are traditionally seen as “blue” are in favor of the merger.

“AT&T/T-Mobile Combination Is A Good Deal For America And For Latinos,” reads the headline on a piece by Juan Andrade, Guarione Diaz and Javier Palomarez in Huffington Post. “From our vantage point as representatives of our organizations' thousands of members across the country, we support this transaction because we are convinced [the combination] will deliver numerous benefits to consumers generally and, particularly, for the Latino communities we represent,” they write.

And then there’s organized labor. The Communication Workers of America, which represents 160,000 AT&T employees, is waging a major PR campaign on behalf of a merged entity. Earlier this year, it released a study that purported that between 55,000 and 96,000 jobs would be created over seven years as a result of the $8 billion AT&T says it’s prepared to spend in wireless infrastructure.

But, the Times’ Wyatt reports, “Only about 29% of those jobs would represent direct employment by the combined AT&T/T-Mobile, according to the analysis. The other jobs would be the trickle-down sort, which exist most often in economists’ models -- like newly hired waitresses serving truck drivers delivering cell phone tower equipment.”

Verizon, meanwhile, has broken its silence on the deal and said that it has no objections to it, TeleGeography reports. At the Morgan Stanley TMT Conference in Barcelona, Verizon CFO Francis Shammo says, “The reason we’ve been silent: we said there needs to be consolidation and as long as there is consolidation without regulation we don’t have an objection to it.”

How’s that for a new megacorporate rallying cry: “Consolidation without regulation!”?

Enjoy your holiday; see you Monday morning.

1 comment about "FCC Adds Static To Proposed AT&T, T-Mobile Deal".
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  1. Barry Dennis from netweb/Omni, November 23, 2011 at 3:13 p.m.

    Sorry, this deal doesn't pass any of the "smell" tests; it's just bad for the industry, the economy, and the public. However much everybody hates "regulation" there IS a job for government, and that is transparency.
    The FTC and FCC are charged with specific duties "in the public interest."
    They should-MUST-take their respective missions seriously. I don't like regulation,. but I LOVE competition.
    Derailing this deal gives hope that more attention will be paid to creating a transparent, competive marketplace in which there is forced separation of Content from the Broadband pipeline, with reasonably competitive access guaranteed. Any effort by regulatory authorities to encourage competition, diminish/eliminate geo- and marketshare monopolies, and create opportunity for more choices at auction-based pricing is to be desired.
    Anything that reduces competition, raises barriers to "entry" by competitors, restricts choices or otherwise reduces opportunity for a freely competitive marketplace is to be discouraged.

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