Jeff Gelles: FCC report highlights AT&T's real motive behind T-Mobile merger

Posted: December 01, 2011

Calls from WiFi hot spots that don't count against your minutes. Unlimited calls to a list of your favorite contacts. Shared family data plans. "Soft" data caps that slow downloads and uploads by heavy data consumers without slapping them with huge overage fees.

Those are just a few of the innovations that T-Mobile has brought to the U.S. wireless market in recent years, according to a report by Federal Communications Commission staffers who reviewed AT&T Inc.'s proposed $39 billion acquisition of T-Mobile USA Inc.

If there were ever any real wonder why AT&T wanted to swallow up T-Mobile - and there really shouldn't have been - the FCC has done a good job of laying it to rest.

In that same report, made public Tuesday to AT&T's heated objections, FCC investigators said the merger partners exaggerated the likely benefits and understated the probable harms of a deal that would cut the number of national wireless carriers from four to three and eliminate the carrier that typically offers subscribers the lowest price.

If the merger were allowed to proceed, the staff report said, an already concentrated market would lose a company that has served as a "disruptive force." As a result, the three surviving carriers would have more opportunity to raise prices and less incentive to innovate.

Like antitrust enforcement, an FCC review of a multibillion deal sometimes looks like a high-stakes chess game. But even in that world, this tale stands out.

It was just last week when FCC Chairman Julius Genachowski called for hearings on the deal, as the staff report recommended. His announcement was a clear signal of doubt that the deal met the FCC's standard to approve the transfer of spectrum licenses, a scarce resource: When all factors are weighed, the FCC says, a transfer must serve "the public interest."

AT&T and Deutsche Telekom, T-Mobile's owner, quickly countermoved. The day before Thanksgiving, they asked the FCC to withdraw their proposal, even as AT&T also made clear that it wasn't abandoning its merger hopes. Instead, it was still preparing to fight an antitrust lawsuit by the Justice Department and at least seven states, including Pennsylvania, that have challenged the deal as anticompetitive.

On Tuesday, the FCC allowed the companies to withdraw the proposal. But it also made its staff report public, if heavily redacted.

AT&T complained loudly, objecting that it had not seen the report and had "had no opportunity to address or rebut its claims, which makes its release all the more improper."

What does the report say that might upset AT&T? And what does this topsy-turvy turn of events mean?

I put those questions to Harold Feld, legal director of the nonprofit group Public Knowledge, which has fought the deal. To Feld, the objections raised by the Justice Department and now by the FCC staff are both signs that the federal government, after years of laxity in reviewing large mergers, is finally doing what the law requires to defend competitive markets and consumers.

Feld says large, well-connected companies have won merger approvals for years by presenting theoretical models that suggest hard-to-believe benefits. Meanwhile, they pull out all the political stops to argue that they're good corporate citizens, and that what's good for their business will be good for the economy.

This time, perhaps finally responding to President Obama's promise of stronger antitrust enforcement, the FCC and Justice Department are demanding proof.

Feld says that stronger line is evident in the FCC's staff report, especially in how it eviscerates AT&T's economic and technical models for how a merger would play out.

"What they said, politely, was: 'These are out-and-out lies. The models that you gave us to prove your claims are laughable, and they're contradicted by your own internal documents,' " Feld says.

Among the contradictions: that AT&T's own models, which claim significant benefits by 2015, show the merger actually producing higher prices and reduced economic output next year "in nearly every geographical area."

This may not be the end of AT&T's plans to take over T-Mobile, even if it's forced to go forward with paying Deutsche Telekom a $4 billion breakup fee. Some analysts predict it will return with a plan that spins off large swaths of spectrum to a local or regional carrier such as Leap Wireless.

Of course, that's a deal that would make AT&T's real goal even clearer: to grow by making a pesky national competitor go away.


Contact columnist Jeff Gelles at 215-854-2776 or jgelles@phillynews.com.

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