FCC Seeks Hearing on AT&T, T-Mobile Deal, Opening Up Possibility of Rejecting Merger

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By Paul Barbagallo  

The Federal Communications Commission took the first step toward rejecting AT&T Inc.'s proposed $39 billion acquisition of T-Mobile USA Inc., announcing Nov. 22 that its chairman will seek an administrative hearing to further scrutinize the deal.

In a conference call with reporters, FCC officials said the agency's chairman, Julius Genachowski, will ask for a hearing because there remains “substantial, material” questions about whether the combination of the second- and fourth-largest wireless carriers in the country is in the public interest.

“The record clearly shows that—in no uncertain terms—this merger would result in a massive loss of U.S. jobs and investment,” said one senior FCC official, who spoke on the condition of anonymity.

The FCC's announcement serves as yet another setback for AT&T in its bid to take over T-Mobile. The Justice Department is already suing to block the deal, which the government says would “substantially lessen competition” in the wireless market in violation of Section 7 of the Clayton Act, leading to higher prices and poorer service quality.

“The FCC's action today is disappointing,” AT&T Senior Vice President Larry Solomon said in an e-mailed statement. “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 U.S. economy desperately needs both. At this time, we are reviewing all options.”

While dealing a significant blow to AT&T, the FCC has yet to take any official agency action. Genachowski has merely circulated a draft order for consideration by the full commission to designate the matter for a hearing before an administrative law judge.

Under the Communications Act of 1934, as amended, the FCC can designate a proposed transaction for a hearing when it cannot find the deal to be in the public interest. According to one FCC official, agency staff has concluded that the proposed merger would “significantly diminish” competition and would not create more jobs as AT&T has claimed.

If Genachowski's draft order is approved by the full commission, a hearing would take place after the Department of Justice's antitrust suit against AT&T is resolved. Officials said the agency would defer action to avoid disrupting the DOJ's case. Regardless, if the DOJ prevails at trial, an FCC hearing would be deemed irrelevant. A trial in U.S. v. AT&T (11-cv-01560) is scheduled for Feb. 13.

The last time the FCC designated a merger for a hearing before an administrative law judge was Echostar Communications Corp.'s proposed acquisition DirecTV, in 2002. The companies later withdrew their merger proposal.

Sprint Lauds Move.

“As Chairman Genachowski said in August when the Justice Department filed its antitrust lawsuit against AT&T, the record before the FCC presented ‘serious concerns about the impact of the proposed transaction on competition,'” said Vonya McCann, senior vice president of government affairs, for Sprint Nextel Corp., the most vocal opponent of the merger. “That record is complete and more than justifies moving this matter to an Administrative Law Judge for a hearing.”

One of the largest deals since the 2008 financial crisis, the proposed merger of AT&T and T-Mobile would supplant Verizon Wireless as the No. 1 carrier in the country. AT&T and T-Mobile together would serve 130 million customers nationwide, compared to Verizon's 97 million.

In addition to circulating an order designating the matter for a hearing, Genachowski is also seeking approval of AT&T's proposal to acquire spectrum from Qualcomm in the 700 megahertz band, subject to conditions.

The FCC had been reviewing AT&T's bid to buy spectrum from Qualcomm in a “consolidated manner” with the agency's ongoing review of AT&T, T-Mobile deal. The reviews were not officially consolidated, however.

FCC officials refused to elaborate on the details of that order.

The full commission could approve the two items on circulation, which means the vote would not have to take place at an open meeting.