AT&T and T-Mobile USA’s parent company, Deutsche Telekom, withdrew applications for Federal Communications Commission approval of their controversial and highly contested $39 billion merger Wednesday. The telecommunications giants made the decision to temporarily withdraw from the approval process one day after FCC Chairman Julius Genachowski announced that he would seek an additional hearing that threatened to sink the proposed merger.
AT&T and Deutsche Telekom said that they will instead focus on gaining antitrust approval from the Obama Department of Justice — a sign that the deal is not yet dead in the water.
“As a result of the FCC’s action, AT&T expects to recognize a pretax accounting charge of $4 billion ($3 billion cash and $1 billion book value of spectrum) in the 4th quarter of 2011 to reflect the potential breakup fees due Deutsche Telekom in the event the transaction does not receive regulatory approval,” said AT&T in a statement on the company’s decision.
Approval of the merger would propel AT&T to the position of the number one U.S. wireless provider, ahead of Verizon. The merger, supporters argue, would benefit the U.S. economy by adding 96,000 jobs. Opponents contend that T-Mobile acts as a market disruptor, and the company’s removal from the market would create a duopoly between Verizon and AT&T, effectively boxing out Sprint.
The deal sparked a controversy over the future of the wireless telecommunications industry in the U.S. The wireless industry faces a looming and imminent “spectrum crunch,” due to more and more Americans owning smartphones, tablets and other wireless devices. Electronic spectrum — used by light, colors, electronic devices and AM and FM radio — is considered a public resource. In the U.S., its consumption is regulated by the FCC.
Ardent merger opponent Gigi B. Sohn, president of the George Soros-funded Public Knowledge — a DC “consumer advocacy” group that has also advocated for the advancement of the FCC’s “net neutrality” regulations — said that the move by AT&T was a play to prevent “the FCC from making public its many, well-documented findings that the deal is not in the public interest and will prevent the judge overseeing the antitrust lawsuit from seeing the FCC’s conclusions.”
The FCC, on the other hand, has yet to release its own data backing its assertion that its “Connect America Fund” — a plan to bring broadband Internet to the rural homes of 7 million Americans over the next six years — would provide 500,000 jobs.
The newly withdrawn merger applications — filed April 28, 2011 — were subject to a lengthy and drawn out review process, temporarily halted in August when AT&T requested to introduce economic models that showed the merger would generate jobs. The merger review process — also called the “180-day shot clock” — was resumed several weeks later, only to be met several days later by an antitrust suit filed by the DOJ — and backed by the full support of Genachowski — against AT&T.
Sprint, whose CEO has fought hard against the merger, quickly followed suit in the first week of September.
Republican Rep. Fred Upton, chairman of the House Energy and Commerce Committee, recently introduced legislation calling for the FCC’s reform, citing protracted merger processes as only one of several justifications for overhaul of what he called “an agency run amok.”