The Federal Communications Commission recently accepted AT&T, Inc.’s request to withdraw its company’s petition to have wireless licenses transferred from T-Mobile to AT&T.
Last week AT&T decided that such a move would allow the Dallas-based telecommunications provider to focus on a lawsuit filed against it by the United States Department of Justice. The decision to withdraw the FCC application was influenced by the Commission’s announcement that it would hold an administrative hearing on the license transfers after a decision was handed down in the Department of Justice’s lawsuit.
As if withdrawal of the application were not enough, AT&T was caught off guard by the release of an FCC staff report that took issue with claims made by AT&T that the acquisition would bring about certain benefits, from increasing the amount of spectrum available to the carrier to the repatriation of 5,000 call center jobs and the creation of hundreds of thousands of indirect jobs.
AT&T took immediate issue with the release of the report. Jim Cicconi, AT&T Senior Executive Vice President-External and Legislative Affairs, stated that “The FCC has recognized that it is required by its own rules to dismiss our merger application. 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. It has no force or effect under law, which raises questions as to why the FCC would choose to release it. The draft report has also not been made available to AT&T prior to today, so we have had no opportunity to address or rebut its claims, which makes its release all the more improper.”
What does this mean for jobs?
AT&T has offered to repatriate at least 5,000 call center jobs. In the long run, by its estimate, its purchase of T-Mobile and the resulting addition of spectrum and customers to AT&T’s balance sheet would result in tens of thousands more being employed. That many jobs can’t be ignored: our slow recovery from the 2007 recession has left the U.S. with a nine percent unemployment rate. African Americans are facing an unemployment rate of 15.1% while Hispanics find 11.4% of their labor force unemployed.
The Justice Department, which filed its lawsuit to block the acquisition in August, is concerned that removing T-Mobile USA as a major provider of wireless services would lead to less competition and higher prices. The FCC’s decision to hold an administrative hearing is now moot, but its decision to release a staff report disparaging the transaction only compounds the negative economic impact resulting from the delay already brought on by the Justice Department lawsuit.
In an earlier statement that addressed the FCC’s announcement to hold hearings, Larry Solomon, AT&T’s senior vice president of corporate communications, stated that “The FCC’s action today is disappointing. It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the US economy desperately needs both.”
Mr. Solomon added that the company was exploring other options designed to persuade the Justice Department to agree to the acquisition.
One of those options is to divest some of T-Mobile’s hard assets, spectrum licenses, and subscriber contracts, making them available for purchase by other carriers.
The buyers would probably be smaller, regional carriers or new entrants because if the Justice Department objects to the number two carrier, AT&T, purchasing the number four carrier, T-Mobile USA, the probability that Justice would approve the purchase of significant chunks of T-Mobile by either number one Verizon or number three Sprint is slight. Further, some analysts consider Sprint’s debt burden and recent agreement with Apple to purchase over 30 million iPhones as deal breakers for any courtship with T-Mobile USA.
But the Justice Department’s lawsuit could bring on a self-fulfilling prophecy, assuming no settlement is entered into between Justice and AT&T. The company has already announced that it is charging off $4 billion from its books to account for an acquisition breakup fee promised to Deutsche Telekom should the deal fail.
Deutsche Telekom has said repeatedly that due to competitive pressures in Europe, it does not plan to invest in new 4G networks for T-Mobile USA. Verizon, AT&T, and Sprint are investing in those networks, which allow for faster data and voice traffic and support handsets that are running the latest applications. T-Mobile USA could very well exit the U.S. market or shrink its operations substantially unless its merger with AT&T is approved.
Ironically, the loss of jobs and competition that opponents of the acquisition have argued could happen should AT&T acquire T-Mobile will likely occur should T-Mobile USA have to downsize or leave the U.S. market if the merger is not approved.
The move by the FCC to release its draft report raises another issue: whether the decision was motivated by politics versus regulatory necessity. Releasing a report that has not been challenged by a hearing process gives the impression that the FCC has been biased against the transaction for some time.
Did AT&T ever have a chance?
Also, did the public ever have a chance? There is no evidence that the report has been released to the public for review and comment. Given information being presented in the media, it is not too far a leap to conclude that the Justice Department is aware of the findings and that this knowledge may result in reducing the likelihood of a settlement.
In short, what did the FCC hope to gain by releasing the report?
The trial date for AT&T is February 13, 2012. There may still be time to save the transaction and the expected jobs resulting from the deal.