Genachowski Proposes ALJ Review of AT&T/T-Mobile Deal

AT&T faces a key decision on whether to plow ahead with the acquisition. Its lawyers had a meeting scheduled with DOJ officials for Monday to discuss a settlement of DOJ’s suit to prevent the deal, industry officials told us. That meeting got pushed until next Monday.

"The FCC’s action today is disappointing,” said Larry Solomon, AT&T senior vice president-communications. “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. At this time, we are reviewing all options.”

Under a timetable laid out by FCC officials, the commission would reach a final decision on the merger only after the ALJ hearing and following a February trial of the government’s case against the deal in the U.S. District Court in Washington.

FCC officials indicated Tuesday that staff have already determined that the AT&T/T-Mobile deal would lead to significant job losses and an unprecedented increase in wireless market concentration, triggering the FCC’s Herfindahl-Hirschman Index in 99 of the top 100 U.S. markets, or every market except Omaha, where T-Mobile does not have operations. Staff also determined that some of the claimed benefits are not substantiated by the record, they said. “The record clearly shows that — in no uncertain terms — this merger would result in a massive loss of U.S. jobs and investment,” a senior FCC official said.

Under the Communications Act, the FCC is required to designate a transaction for hearing in cases where there are substantial questions of fact regarding its relative harms and benefits, an FCC official said. The FCC had only three choices: to approve the merger, approve it with conditions, or send it to an ALJ for a hearing, an official said. After a hearing, the ALJ will issue an initial decision based on the evidence, which will be reviewed by the full commission.

The FCC has only one ALJ at this point, Richard Sippel. The rules for the hearing, and whether the hearing would be open to the public, will be determined by Sippel if a hearing actually takes place, officials said.

Merger opponents were quick to hail Genachowski’s proposal. “The Department of Justice and the FCC both agree that this merger is a bad deal, and it’s time for AT&T to walk away,” said Free Press President Craig Aaron. The “record is complete and more than justifies moving this matter to an Administrative Law Judge for a hearing,” said Sprint Senior Vice President Vonya McCann.

"A decision to designate a hearing constitutes a finding by the FCC that there are ’substantial and material’ questions as to whether the deal is in the public interest,” said Media Access Project Senior Vice President Andrew Schwartzman. “It 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."

Rural Cellular Association President Steve Berry was pleased with the decision on the AT&T/T-Mobile deal but said the Qualcomm buy also raises questions. “AT&T’s pattern of spectrum aggregation has created significant harm to competition, including impairing device interoperability; foreclosing competitors from acquiring usable spectrum; preventing nationwide seamless voice and data roaming; and restricting consumer choice,” he said.

The Qualcomm purchase would give AT&T additional 700 MHz spectrum in key markets, one of the goals of the T-Mobile buy. But it’s a much smaller deal, valued at $1.9 billion, compared to the $39 billion T-Mobile purchase.

AT&T does have a choice and won’t be forced by competitive forces to deploy LTE to 97 percent of the U.S. if its buy of T-Mobile is not approved by the FCC, AT&T said in a filing Tuesday at the FCC. AT&T fired back at a Nov. 1 filing by Sprint Nextel, which questioned AT&T’s LTE claims.

Meanwhile, AT&T lost a round in its court fight with the Justice Department. Special Master Richard Levie handed down an order Monday night siding with DOJ, giving its outside counsel and experts access to confidential documents filed by AT&T as the government prepares its case against the merger.

Sprint said in a Nov. 1 filing AT&T “seriously misrepresents the record” and will, even if its purchase of T-Mobile is rejected, “invariably deploy LTE to almost the entire U.S. population within the next few years to remain competitive with Verizon."

"Sprint is correct about one thing: AT&T does view Verizon as its primary and most important competitor, and it strives not only to match, but surpass, Verizon in network quality and other attributes,” AT&T countered. “That does not mean, however, as Sprint maintains, that AT&T ‘has no choice’ but to deploy LTE to virtually the entire U.S. population. To the contrary, when AT&T senior management rejected the ‘LTE everywhere’ option in January and prior thereto, they were fully aware of Verizon’s announced LTE deployment plans.” Parts of the AT&T filing were redacted.

AT&T said if the T-Mobile buy does not go through it will be “forced to devote extraordinary capital and engineering resources to expensive and inefficient ways of extracting more capacity from its network resources.” AT&T would have to “devote large sums of money to upgrading its HSPA+ network to LTE in the most remote parts of the country."

AT&T and DOJ had been at odds over the DOJ motion (CD Nov 22 p13). Levie noted in his order that DOJ’s request was very targeted. “Plaintiffs seek leave to share a defined and limited set of documents with outside consultants or counsel for a single company — Sprint,” he wrote. “Rather than seeking all of AT&T’s documents, Plaintiffs are now seeking a more limited subset of documents related to a defined subject and for the limited purpose of identifying which of Sprint’s employees are the logical choices to be named as witnesses on behalf of Plaintiffs."

Kansas Attorney General Derek Schmidt, meanwhile, urged the FCC to wrap up its review of the deal, in a filing at the commission (http://xrl.us/bmjapd). “The mobile wireless services market is already highly concentrated,” he wrote. “More concentration in this area will only harm competition, reduce choice, raise prices, and thus harm the consumers we are charged with protecting.”