AT&T Says FCC Must Accept Withdrawal of Application in T-Mobile Deal

Public Knowledge Legal Director Harold Feld, among others, said the FCC doesn’t have to accept AT&T’s request for withdrawal. The commission can dismiss the application with prejudice, which would prevent AT&T from re-applying, can publish the order setting up the administrative law hearing and grant the withdrawal, or simply move the case to the administrative law judge. FCC officials didn’t comment Friday. Feld told us Friday that AT&T can withdraw its application without prejudice, but he hoped that the FCC “shouldn’t allow parties to manipulate agency rules."

In an email release to the media on Friday, AT&T begged to differ, saying Feld’s analysis “is not accurate.” The statement concluded: “The FCC’s own rules give us this right and provide that the FCC ‘will’ grant any such withdrawal. Further, this has been the FCC’s own consistent interpretation of its rules. We have every right to withdraw our merger from the FCC, and the FCC has no right to stop us. Any suggestion the agency might do otherwise would be an abuse of procedure which we would immediately challenge in court."

The question is how soon AT&T got its application in. Section 1.934(A) of the Code of Federal Regulations compels agencies to grant withdrawal requests on applicants’ terms unless the application has been “designated for comparative hearing.” The FCC said it voted to designate the matter on Tuesday. AT&T said “we believe the record will show that we withdrew our merger application before the FCC voted on the chairman’s proposed hearing designation order.”

If AT&T wins the right to withdraw and to refile later, that “could be a smart move as the company may be preserving itself the opportunity to refile at a time when the politics are better, and perhaps after a new FCC chair is put in place (possibly after the November presidential election),” Wells Fargo analyst Jennifer Fritzsche said Friday: “By pulling the existing applications from the FCC, AT&T precludes any pre-ALJ hearing additional discovery, document collection, etc. Additionally, given the fact it is unlikely it will achieve its prior close timing goal of 1H 2012, by removing this application now, AT&T denies this FCC the chance to affirmatively and unequivocally deny the merger."

AT&T and Deutsche Telekom have set a closing deadline of Sept. 20, 2012. The parties could extend that deadline, but that seems premature. Wells Fargo’s Fritzsche said she thought AT&T’s decision to set aside the $4 billion “is a good faith move by AT&T to show Deutsche Telekom it remains serious and focused on getting this deal done."

The FCC has fielded 430 “withdrawal” filings in the last decade (http://xrl.us/bmjinq), not including AT&T and T-Mobile’s, our review of FCC records shows. The vast majority of the withdrawals relate to proceedings other than a license transfer. Most involve waiver requests, petitions for rulemakings and the like. Our review found two license transfer applications withdrawn during the last 10 years.

In one of those transactions, a 2008 deal involving bComm, Starvox and Capital Telecommunications Inc., the parties “respectfully request[ed]” their application bet withdrawn after companies terminated their sale agreement, a filing shows (http://xrl.us/bmjijz). In the other license transfer, the applicants simply told the commission they were withdrawing the application (http://xrl.us/bmjij5). A review of several withdrawal filings in proceedings not related to license transfers also found a variety of written courtesies applied to the withdrawals. Some simply announced an application or petition was “hereby withdrawn,” while others requested the FCC withdraw the application and subsequently close whatever proceeding it may have initiated. That’s the tack AT&T took in its request.

AT&T will focus on its February court date here in Washington as it takes on the Department of Justice, Sprint and C Spire. In the meantime, though, the company could well tweak its FCC application so it preempts concerns about the acquisition, one telecom official said Friday.

The court may not do anything on its own motion but will wait and see a motion from the Department of Justice or Sprint Nextel or C Spire, Public Knowledge Legal Director Harold Feld told us. If the deal completely falls apart, T-Mobile has several options, he said. The company already had several bidders before AT&T’s offer, he said. “Anyone rather than Verizon can walk in and buy the company” with few hurdles, according to Feld. “It’s a golden opportunity for Comcast” to get into wireless, he said. Meanwhile, when the deal was announced, Deutsche Telekom was trying to get out of the U.S. market and focus on the European market, he said. But with the economic turmoil in Europe, the parent company might rethink its strategy, he said.

An option for AT&T is to negotiate a deal with T-Mobile, allowing AT&T to acquire the spectrum and networks but letting T-Mobile keep the customer base, some analysts said. But Feld is skeptical that DT would go for it. And DOJ and the FCC might not buy the idea that a negotiated deal would solve the problem, he said: “How do you make sure the entities will stay truly independent?” Additionally, it’s hard to re-negotiate deals, he said.

The California Public Utilities Commission still has an open proceeding of the transaction. CPUC is likely to wait and see what the federal regulators will do, Feld said. The CPUC proceeding is based on the state’s independent authority to examine the deal, said Matt Wood, policy director with Free Press. It seems that the state commission still could proceed at this point, unless AT&T and T-Mobile can “pull off a similar retreat in California by withdrawing there."

The CPUC recently set a deadline for comment on AT&T’s economic models, moving forward again after a two-month holding pattern following the filing of the DOJ suit. While the CPUC probably could keep going on its own, it’s obvious that the state regulators have kept an eye on the federal proceedings, Wood said. It remains to be seen what California will do, but it’s likely that the administrative law judge and commissioners there would “watch the national stage and wait for some of the dust to settle here,” Wood said.

Regarding the possibility of a re-negotiated deal with T-Mobile, the CPUC and other states would “have every reason to examine that type of deal as well,” Wood said. For example, the CPUC has the authority to review transfers of wireless carriers’ assets, even if the companies are not merging all of their operations or customers, he said. In any case, any deal that leaves T-Mobile partially intact but makes it more dependent on AT&T should raise many of the same concerns about AT&T’s increased dominance in the wireless market, he said. Since the AT&T federal suit is continuing, the states are likely to continue to go forward as well, a state regulatory analyst said.