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Technology / OPINION

AT&T Fight Isn't Over

AT&T-T-Mobile merger logo(none)

photo of Bruce Gottlieb
August 31, 2011

To the surprise of many telecom watchers—including this one—the Justice Department filed suit on Wednesday to block AT&T’s takeover of T-Mobile.

Usually, this step would represent the death knell for an acquisition attempt. But AT&T has the right to fight it out in District Court by asserting that Justice can’t make its case under existing antitrust standards. And it seems highly likely that AT&T will try to do just that. 

The answer from a judge is likely to come in the spring or summer of 2012.  Which will be a pretty breathless period for AT&T, no doubt, as the company is  on the hook for $6 billion in case of a breakup. 

 

This unusually large fee was initially regarded as a strong statement by AT&T of its confidence that the deal would go through. In retrospect, however, it may go down as a pretty clever bit of negotiating by T-Mobile.

If AT&T does end up losing this deal, it will be a stunning reversal of recent history.  The company’s greatest defeat was of course the breakup of Ma Bell in 1984.  (Though technically a voluntary settlement, the 1984 deal was negotiated in the teeth of a likely defeat before Judge Harold Greene of the District Court in D.C.)

But since then the company hasn’t lost many regulatory fights, as it has reassembled itself through a series of big-dollar acquisitions led by its swaggering former CEO Ed Whitacre (who went on to become CEO of General Motors during its bankruptcy and government bailout). 

This track record of success has given AT&T’s D.C. office an aura of invulnerability that informed many initial reactions to this deal.  AT&T even got a host of Silicon Valley companies—the natural opponents to consolidation in the market for mobile access to the Internet—to write a letter supporting the merger. 

So perhaps the most important takeaway from the announcement is that there is still some sand in the federal government’s telecom-competition policy. This is news because many, if not most, of the biggest fights in telecom policy over the past decade have been in one way or another about competition policy. And in virtually every case, the losing side has been the one seeking more government intervention to promote (the other side would say to artificially prop up) competition. 

Reasonable minds can disagree on who had the better half of the competition wars. But until Wednesday’s decision it was getting pretty hard to imagine any competition policy that was ever going to get traction in Washington. Indeed, in this ex-regulator’s humble opinion, competition policy ranks as one of the two most bungled areas of U.S. technology policy in the past two decades (the other is Internet privacy).

In any event, it is revealing that today’s decision came from the Justice Department and not the Federal Communications Commission, which shares jurisdiction over the merger. 

The Justice Department is an executive branch agency with a relatively strong tradition of noninterference by political leadership, especially in matters like antitrust and criminal justice. The FCC, by contrast, is in theory a bipartisan, independent agency. In practice, this means it is buffeted by a far greater variety of political winds—including both parties in both branches of Congress and the huge companies it regulates—and without the kind of protection that comes from being a formal part of the presidential administration. 

So what happens next?

The main show will likely be the District Court case. It seems likely that the FCC will simply hold its proceeding in abeyance pending the outcome. There is a chance, however, that the FCC would take the formal step of designating the merger for a hearing—the first step toward blocking it at the FCC as well—which would be another blow to AT&T’s chances.

Expect a lot of action in the media and political realms about whether killing the merger is good or bad for American jobs, consumer prices, and the pace of innovation and economic growth.  But these political arguments are likely to matter a lot less now that the field of battle is the federal courts. 

If the merger is eventually blocked—and T-Mobile walks away with its breakup fee and a new lease on life—the focus will then shift to the FCC. 

The reason is that the Justice Department sets competition policy only when there is a merger transaction or when, as with AT&T in 1984, things have gotten so out of hand that a breakup is required. But it is the FCC, not Justice, that is responsible for the day-to-day management of commercial spectrum. 

The looming fight over wireless competition will be about how to dole out spectrum that is being repurposed from legacy uses like TV broadcasting to iPhones, iPads, and the like.  Will it go to whoever can pay the most? Or will there be a finger on the scale for smaller providers, in the hopes of supporting competition? 

The answer will matter tremendously because all carriers are facing spectrum scarcity as next-generation applications require ever-faster speeds. T-Mobile is in far and away the worst spectrum position of all the major carriers—indeed, that is one major reason it agreed to be acquired by AT&T.  

NOTE: Bruce Gottlieb is the general counsel of National Journalparent company Atlantic Media Co. Until last summer, he was chief counsel and senior policy adviser to the current chairman of the FCC, Julius Genachowski, and before that he was an adviser to Commissioner Michael J. Copps. The author’s views are his alone.

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