Genachowski Doesn’t Have the Votes for AT&T Buy of Qualcomm Spectrum

FCC Chairman Julius Genachowski circulated orders the same day approving the Qualcomm buy while sending AT&T/T-Mobile to an administrative law judge for hearing (CD Nov 23 p1). AT&T subsequently withdrew its application to buy T-Mobile, and Thursday AT&T’s top lobbyist Jim Cicconi sharply criticized the commission for releasing a staff report analyzing the T-Mobile deal (CD Dec 2 p5). Neither development was helpful to AT&T’s efforts to win support for the $1.9 billion Qualcomm deal, which was announced a year ago, agency officials said. The deal faces a Jan. 13 financing deadline, though that could be extended. Qualcomm and AT&T held various meetings with commission officials Friday to address questions that have emerged in recent days.

On Friday, Verizon Wireless’s proposed buy of AWS licenses added another wrinkle to the equation, since the commission now has before it a second buy of spectrum licenses by one of the nation’s two largest wireless carriers. That deal is already getting the same pushback from small carriers and public interest groups who opposed AT&T’s purchase of Qualcomm spectrum. One FCC official said last week the Qualcomm approval was a close call for staff, but Genachowski is proposing AT&T get the spectrum with only minimal conditions.

Meanwhile, at the end of a bad week for AT&T, industry officials were questioning whether AT&T made miscalculation in March when it decided it could make the T-Mobile deal work, especially in light of the Department of Justice law suit and the overwhelmingly negative report released Tuesday by the FCC.

"To me, it’s not clear that they misread anything at all,” said Sanford Bernstein analyst Craig Moffett. “It appears that they got all their ducks in a row politically, and arguably even at the FCC. The one risk they couldn’t hedge was the DOJ, but the potential benefits were so great that it was worth a calculated risk, so they went ahead and rolled the dice. In the end, it didn’t go their way, but I don’t think they can be faulted for taking a risk."

AT&T may have misread the views of the policymakers who had to decide whether the merger could proceed more than the politics, said Jeff Silva, analyst at Medley Global Advisors, who noted that the last two Wireless Competition reports from the FCC raised strong concerns about the state of the industry. “It could be argued the merger campaign was the most masterful ever choreographed in official Washington,” Silva said. “The deal, which promised to help fulfill President [Barack] Obama’s universal broadband goal and inject $8 billion in infrastructure investment into a sputtering economic recovery, secured early support from key Democratic base constituents and later from Democratic House members, mayors and governors, the tech sector and others. AT&T checked off almost every box politically possible.” But the politics have shifted since the deal was announced, he said. “The political winds blowing strong today were only seeds of discontent when the deal was announced in March,” he said. “The occupy movement and anti-corporate sentiment that have gained strength in recent months do not necessarily favor AT&T/T-Mobile, but seem to fit seamlessly into the pre-2012 election narrative of the White House,” Silva said. “Thus, the significant public framing of the merger in terms of the jobs impact.”

AT&T’s bid for T-Mobile was undone by the regulatory equivalent of “the perfect storm,” said a government official. “It all started with the audacity of the original deal,” the official said. “Originally, there was the somewhat jaw dropping announcement of the number two [carrier] buying the number four, making a really big number one. Then AT&T did an excellent job of lining up Democrat constituencies -- labor unions, the civil rights community, parts of Silicon Valley, officials from across the country.” But then DOJ Antitrust Chief Christine Varney announced she was leaving and Deputy Attorney General Eric Holder recused himself from working on the deal. That put the decisionmaking in the hands of career staff at DOJ. “You had a political power vacuum” at DOJ, the official said. “There’s a lot of interaction between the transaction team at the FCC and DOJ. The team at the commission sincerely believed that the deal as proposed was not workable. They believed it was never a close call. Those two groups working together produced the result that we have today.”

"The heavyweight champ always gets complacent, right?” said a former federal official. “Ask Mike Tyson why he wasn’t prepared for Buster Douglas. At some point you're just used to getting your way and used to being able to do things.”

Public Knowledge Legal Director Harold Feld said AT&T’s calculation it could make the T-Mobile deal work came in the wake of the FCC’s net neutrality order, in which AT&T and other companies succeeded in convincing the FCC not to reclassify broadband as a Title II service. Comcast also had just won FCC support for its buy of control of NBCUniversal. “In light of those two examples it was not unreasonable for AT&T to say to itself, ‘We can take these guys,'” Feld said. But AT&T couldn’t overcome DOJ’s and FCC’s conclusions that the merger was bad for competition nationwide, he said. “If you read the staff report it is very clear that as a substantive matter there was not a shred of doubt by staff that this was a terrible merger,” he said. “At the DOJ and at the FCC there was a very strong sense among the staff that if antitrust means anything, if our job means anything, you've got to block this one.” AT&T appeared confident but never had a good case for the merger, Feld said. “Sometimes in poker your bluff gets called, is what it boils down to, and AT&T has been on a winning streak for a long time."

By one account, lawyers told AT&T it had a 60 to 70 percent chance of winning approval, as the company considered its bid for T-Mobile, said Andrew Schwartzman, senior vice president of the Media Access Project. “That could not have been the product of a straightforward legal analysis; it had to have been a political calculation,” Schwartzman said. “When the deal was announced, there is no one I talked to not on the [AT&T] payroll who thought it would pass muster. Clearly, someone made the misjudgment that AT&T’s political muscle was strong enough to overcome the substantive problems. That explains the unprecedented political campaign AT&T mounted. Ultimately, the law triumphed over the politics."

"AT&T’s political miscalculation was a monetary miscalculation: The company overestimated just how much credibility it could buy,” said Free Press Policy Director Matt Wood. “AT&T is used to spending tens of millions of dollars on elections, lobbying, lawyering, and advertising to get its way in Washington. Yet despite all the money that merger proponents threw around this time, they haven’t been able to hide the facts of this deal. ... It’s long past time for AT&T to walk away, and for other supporters of the deal to look beyond AT&T’s bluster and empty promises.

Meanwhile, Geoffrey Manne, a lecturer at Lewis & Clark Law School, said in a blog post Friday the FCC staff report was “appalling” and Cicconi’s response was right on many levels. “With this report the FCC staff joins the exalted company of AT&T’s complaining competitors (surely the least reliable judges of the desirability of the proposed merger if ever there were any) and the antitrust policy scolds and consumer ‘advocates’ who, quite literally, have never met a merger of which they approved,” Manne wrote (http://xrl.us/bmj3he). “What is really galling about the staff report -- and, frankly, the basic posture of the agency -- is that its criticisms really boil down to one thing: ‘We believe there is another way to accomplish (something like) what AT&T wants to do here, and we'd just prefer they do it that way.’ This is central planning at its most repugnant.”