FCC to Release Staff Memo Sharply Critical of AT&T/T-Mobile Deal

FCC had the discretion not to grant AT&T’s request but decided doing so would be in the public interest, an FCC official said during a briefing with reporters Tuesday. The report does not examine whether any divestiture would address the FCC’s concerns, an official said. The FCC will keep the docket open on the AT&T/T-Mobile deal even though it’s now officially no longer before the agency, officials said. The officials spoke during the news briefing on the condition they not be named.

Since AT&T is being permitted to withdraw the application “without prejudice,” AT&T and DT could file a revised application later, officials said. If the companies do refile, they would have to essentially start from scratch, with a new 180-day shot clock, an official said. The staff report is based on thousands of pages of filings reviewed by agency staff after the application was filed April 21. At our deadline, the FCC had yet to post the 109-page redacted report.

AT&T questioned the FCC’s decision to release the report. “The FCC has recognized that it is required by its own rules to dismiss our merger application,” the company said. “This makes all the more troubling their decision to nonetheless release a preliminary staff report on the merger. This report is not an order of the FCC and has never been voted on. It is simply a staff draft that raises questions of fact that were to be addressed in an administrative hearing, a hearing which will not now take place."

"The information that the FCC compiled over much of this year should spell the end of AT&T’s attempted takeover of T-Mobile,” said Public Knowledge President Gigi Sohn. The Media Access Project said the FCC made the right call in releasing the report. “The American public paid for scores of FCC employees to work, often around the clock, for nine months investigating the proposed AT&T/T-Mobile deal,” MAP said. “The public is entitled to know how its money was spent, and to know what the FCC staff concluded.”

A possible sale of T-Mobile assets in key markets to Leap Wireless prompted some sharp criticism from public-interest groups already opposed to the AT&T/T-Mobile deal. It remains unclear whether AT&T will be able to work out a deal with Leap and, if so, whether it would pass regulatory muster. Critics point to FairPoint’s struggles after acquiring Verizon’s landline operations in three New England states, which ultimately led to FairPoint’s bankruptcy. Critics also question how easy it would be for Leap to integrate T-Mobile’s assets. T-Mobile is a GSM carrier, while Leap uses CDMA technology. Leap offers only pre-paid service, while T-Mobile is a post-paid carrier.

"I take it seriously in the sense that I believe that such talks are happening,” said Jeff Silva, analyst at Medley Global Advisors. “What’s being reported is accurate and it reflects AT&T effort to try to keep alive the settlement option.” AT&T may have a bigger problem, Silva said. “I just think the administration does not want this transaction to happen,” he said. “I really don’t believe there is any divestiture proposal or proffer that’s going to sway the Justice Department to want to settle."

"AT&T has lost touch with reality,” said Andrew Schwartzman, senior vice president of the Media Access Project. “Its desperate attempt to salvage the T-Mobile deal would do nothing to address the centerpiece of the Department of Justice’s antitrust case, which is that the deal will create an AT&T/Verizon duopoly in the national market for postpaid wireless services."

"Leap currently has less than two percent of the nation’s cellular customers and were they to receive this supposed 40 percent of T-Mobile’s customers it would more triple their size and it’s a recipe for disaster,” said Free Press Research Director Derek Turner. Leap also isn’t nationwide, covering just 93.5 million POPs, he said. “DOJ really focused a lot on the loss of a national carrier.” Turner said Leap buying T-Mobile assets would be comparable to FairPoint buying Verizon’s assets, and Leap would see similar growth. “No business is really prepared to handle that overnight,” he said. “There'll be massive consumer disruption and a lot of people will probably wind up fleeing to AT&T or Verizon."

"It would be an expensive undertaking for Leap and it would be a significant expansion for them if they were to get a lot of the T-Mobile customers,” said Roger Entner, founder of market research firm Recon Analytics. “It would mean the integration of a GSM network with their CDMA network. It’s possible. It would catapult them to a number five position, but it would be by no means an easy feat to pull off."

Entner said none of the problems are insurmountable. For example, he said, Alltel made a network work built around different systems, before it was bought by Verizon Wireless. “Alltel was like the Switzerland of the Midwest,” he said. “It had a CDMA network, it had a GSM network, and when that was still around, it had a TDMA network, and everyone roamed on them.” The FairPoint example shouldn’t scare regulators away from allowing Leap to buy T-Mobile assets, Entner said. “FairPoint is a lesson in how not to do it,” he said. “The Leap leadership team has been through bankruptcy once before. They don’t want to repeat that. They've learned from that lesson.” When FairPoint made its buy “they overpaid,” he said. “They were too heavily leveraged. They were in markets where it’s too expensive to build out.”