The Justice Department’s move to block AT&T's merger with T-Mobile takes the Federal Communications Commission out of the telecom limelight for now.
After five frantic months in the life of Docket 11-65, the FCC’s merger proceeding, the power shifts to the courts, where a single judge -- Ellen Segal Huvelle, a 12-year veteran of the U.S. District Court for the District of Columbia -- will decide the future of the wireless landscape.
The reprieve gives FCC Chairman Julius Genachowski some time to decide the next big question on his plate: when to announce the conclusion of his own review of the case. Analysts say he is all but sure to side with Justice Department officials, who coordinated their review with the telecom agency. But his timing could be everything.
The FCC “may choose not to render a decision until merger litigation has played out. In previous telecom merger reviews, DOJ and FCC have attempted to harmonize policy outcomes,” Jeffrey Silva, a telecom analyst at Medley Global Advisors, said in a note to subscribers on Wednesday.
Merger opponents want the FCC to move immediately to block the deal. The proposal could move onto the agenda as soon as October, according to Public Knowledge Legal Director Harold Feld. “The Justice Department has done its job. Now the FCC should do its job, follow the law, and reject the takeover of T-Mobile," Feld said in a statement on Thursday.
But it’s possible the FCC may want to keep its powder dry on the off chance the Justice Department decides to settle out of court with AT&T.
A comment from Acting Assistant Attorney General for Antitrust Sharis Pozen on Wednesday suggested to some analysts that negotiations with Justice Department officials may continue. "Our door is open," Pozen said at a news conference. "If they want to resolve those [competition] concerns, we can certainly do that."
But many analysts and former Justice antitrust lawyers say the department is likely in the fight to win it.
"Our regulatory team in D.C. believes that the DOJ is intent on blocking the deal and is not simply using [the] announcement as a negotiating tactic and that AT&T is likely to sue the DOJ to obtain approval for the acquisition," said Stifel Nicolaus’s Christopher King, adding that the DOJ move "does suggest that AT&T now faces a long, uphill battle for approval.”
Richard Brunell, director of legal advocacy for the American Antitrust Institute and former trial lawyer for the Justice Department, said he would be "very surprised" if Justice was thinking of using the lawsuit as a bargaining chip. “This was an unusually quick move for the government. Usually it’s the parties that are waiting on the government.”
He said that unless the case is settled or AT&T ends the effort, a period of discovery to allow both sides to gather more information will be followed by a relatively short trial.
If Justice settles, the FCC could then approve the deal with conditions, a process that gives officials a chance to meet public policy objectives under the broad mandate that the condition will serve the public interest.
Genachowski didn’t say much on Wednesday when Justice officials announced their decision, but he made it clear he was in their corner. “Competition is an essential component of the FCC’s statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition,” he said in a statement.
Huvelle was chosen by computer. She has heard numerous antitrust cases, including one in which she sided against government lawyers attempting to block SunGard Data Systems’ acquisition of Comdisco’s data recovery business.
In many regular merger cases, government lawyers would quickly move for a preliminary injunction to prevent the companies from moving forward while the case is litigated. But analysts say the Justice Department may be skipping that step because the FCC has yet to approve transferring spectrum licenses from T-Mobile to AT&T, effectively blocking the deal for now.
The government's aggressive action in the case came as no surprise to Allen Grunes, chairman of the Bar Association of the District of Columbia's Antitrust law Committee and a former lawyer in the DOJ’s Antitrust Division.
“The point is you’ve got a group of lawyers who have worked in the industry and they know the way it works,” said Grunes, who earlier this year predicted that government lawyers would be willing to block the merger. “They have a track record of winning cases. You’ve got the A team here.”
The prospect of a prolonged legal battle with government lawyers often prompts companies to give up altogether, Brunell said. But so far, AT&T has shown no signs of backing down.
“The DOJ has the burden of proving alleged anticompetitive affects and we intend to vigorously contest this matter in court,” AT&T general counsel Wayne Watts said Wednesday. But that may not be enough, said Brunell.
“They’ll throw a lot of resources at this but the betting is on the DOJ to win,” he said.