AT&T drops bid to purchase T-Mobile, cites FCC and DOJ intervention

Josh Peterson Tech Editor
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AT&T announced late Monday afternoon plans to drop its $39 billion bid to purchase T-Mobile, citing federal government intervention by the Federal Communications Commission and the Obama Justice Department as reasons for ending the deal.

A looming spectrum crisis — a shortage the availability of electromagnetic spectrum, the substance on which wireline and mobile communication travels — shadows over Washington bureaucrats, lawmakers and telecommunications companies; the deadline, 2015.

Solving the spectrum crisis — caused by increased adoption of mobile broadband devices, through federal “auctions” — is seen as one way to reduce the federal deficit by putting the auction proceeds into the U.S. treasury.

Supporters of AT&T’s deal with T-Mobile also saw the merger as another solution to the “crunch.”

Randall Stephenson, AT&T chairman and CEO, said in a statement announcing the end of the deal, “Over the past four years we have invested more in our networks than any other U.S. company.”

“As a result, today we deliver best-in-class mobile broadband speeds — connecting smartphones, tablets and emerging devices at a record pace — and we are well under way with our nationwide 4G LTE deployment,” said Stephenson.

Stephenson said that policy makers should “allow the free markets to work so that additional spectrum is available to meet the immediate needs of the U.S. wireless industry,” and that “policymakers should enact legislation to meet our nation’s longer-term spectrum needs.”

FCC Chairman Julius Genachowski, in a statement released later in the evening, agreed with Stephenson’s second point. “The U.S. mobile industry leads the world in mobile innovation,” said Genachowski, “and we agree with AT&T that Congress should pass incentive auction legislation that will unleash new spectrum for mobile broadband.”

Genachowski said the deal would have “done the opposite” of creating jobs and benefiting consumers by eliminating competition from the mobile marketplace.

Spectrum legislation, which would authorize the FCC to conduct spectrum auctions to move specific frequency bandwidths from cable providers — voluntarily relinquished — to mobile providers, has been a hot issue in the telecommunications policy community in Washington, D.C. through the course of the year.

The revenue from auctions would have been split between the companies and the FCC, the FCC’s portion going to the U.S. treasury as a deficit reduction measure.

Following AT&T’s merger announcement with T-Mobile in March 2011, months of opposition by the Federal Communications Commission, the Justice Department, Sprint and Sprint-affiliated lobby groups ensued.

“The actions by the Federal Communications Commission and the Department of Justice to block this transaction do not change the realities of the U.S. wireless industry,” said AT&T in a statement released after the closing bell.

“It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately,” said the company.

AT&T did not respond to requests for further comment from The Daily Caller about its decision to drop the deal.

AT&T’s latest announcement comes a week after the company announced an agreement with the Justice Department to postpone the trial. Sprint and C Spire Wireless, a smaller phone company, also agreed last week to drop suits against their larger rival. AT&T and T-Mobile requested to withdraw their merger applications late November following a threat from Genachowski to file for an administrative law hearing to review the merger.

Heavy opposition to the merger was sponsored by Sprint, including the support of several so-called public interest groups — Public Knowledge and Media Access Project. Both groups, which regularly petition the FCC about “media reform” issues, ran massive campaigns against the merger.

Public Knowledge’s Legal Director Harold Feld released a statement Monday reacting to AT&T’s announcement, stating Public Knowledge was “thankful the proposed AT&T and T-Mobile merger is now officially dead.”

AT&T and T-Mobile’s request to withdraw their merger applications from the FCC prompted Public Knowledge and Media Access Project to accuse AT&T of “gamesmanship,” citing the withdrawal of their applications as a move to prevent the FCC’s staff report on the merger from being released to the DOJ.

Genachowski released the staff report the same day the commission announced the approval of the merger application withdrawal, sending a conflicting message to public and private sector officials alike, and prompting Missouri Republican Sen. Roy Blunt, during the confirmation hearing of FCC nominees Jessica Rosenworcel and Ajit Pai, to ask, “Does the commission act through its actions or its staff?”

Closer examination of the staff report revealed that the commission did not apply the full “spectrum screen,” the agency’s tool to measure spectrum concentration in a particular area, but instead raised antitrust warning flags.

While  the FCC has said the screen is routinely updated during merger reviews, not everyone within the commission agrees with the legality of that process.

The FCC, generally united along partisan lines, displayed a split of opinion over how the agency handled the merger. On one hand, Genachowski favored and applied criteria which had not been formally adopted by the FCC, much to the dissatisfaction of merger supporters.

Left-leaning Commissioner Michael Copps, who also opposed the merger, criticized Genachowski’s ad-hoc rule-changing mid-review, stating that the merger review should be subject part of an open and transparent process. Copps’ dissent remains consistent with an opinion he voiced during similar proceedings with the Verizon-Alltel merger review in 2008. Copps will be retiring from the commission at the end of the year.

The other two commissioners remained silent on the issue.

When asked by The Daily Caller about whether she agreed with the stance of either Genachowski or Copps, Commissioner Mignon Clyburn — another left-leaning commissioner — did not respond to The Daily Caller’s request for comment.

GOP Commissioner Robert McDowell, a regular and outspoken opponent of Genachowski, also did not respond to TheDC’s request for comment over the Copps-Genachowski divide.

Neil Stevens, Red State’s ‘Tech at Night’ author, said, “Genachowski may be counting on Copps’s departure to prevent that from being an issue.”

“With him gone, the Chairman will apparently be free to do what he wants, declaring what the rules will be anytime he wants, picking one set of rules for one company, and another set of rules for another, with nothing to stop him,” said Stevens.

Concerns over the orientation the agency has taken in recent years were expressed by analysts and lawmakers alike. Larry Downes, a Senior Adjunct Fellow at TechFreedom, a market-oriented tech policy think tank, has expressed concern in the past that the agency is on a “quixotic, political agenda.”

In a recent article Downes expressed concern that the agency had become “dangerously anachronistic,” writing,”The FCC is moving from rogue to steampunk.”

The FCC was expected to respond by Monday to questions from House Energy and Commerce Committee Chairman Fred Upton and Communications and Technology Subcommittee Chairman Greg Walden regarding what processes it followed during the merger review.

Walden and Upton are among the many critics of the agency in the House. Walden is on record calling the FCC “an agency run amok.”

A bill sponsored by Walden is currently pending in the House to reform the way the FCC conducts its affairs.

Attorney General Eric Holder told the Senate Judiciary Committee in early November that the Justice Department’s antitrust trial team was “ready and eager” to fight in court to prevent AT&T’s acquisition of T-Mobile.

Due to the merger’s failure, AT&T will take a $4 billion tax penalty in the 4th quarter of 2011 — to reflect the $3 billion breakup fee promised to T-Mobile, and $1 billion in spectrum rights — agreed upon in the initial breakup terms of the merger agreement. The company will instead also enter into a “mutually beneficial” roaming deal with T-Mobile’s parent company, Deutsche Telekom.

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