AT&T And T-Mobile Marriage – It’s Complicated

Deutsche Telekom and AT&T announced that they will drop their applications to transfer licences for wireless spectrum, which are essential for AT&T to complete the $39 billion buyout of US wireless company T-Mobile.

The move comes two days after the Federal Communications Commission (FCC) announced that it was referring the application to an administrative law judge because of doubts about the factual grounding of AT&T’s application and doubts that the transfer would be in the public interest.

A turkey for Thanksgiving

The announcement was made in the early hours of Thanksgiving morning, a major holiday in the United States, in what some observers said was an obvious attempt to escape attention by the news media. However, Thursday wasn’t a holiday in Germany, and Deutsche Telekom (DT) announced the decision at the beginning of the workday there.

In addition to withdrawing its applications before the FCC, AT&T also announced that it expects to recognise a pre-tax accounting charge of $4 billion (£2.6bn), comprised $3 billion in cash and $1 billion in spectrum, for the contractual breakup fees due because it now appears inevitable that the parties will fail to get regulatory approval for the merger by the end of September 2012.

While both DT and AT&T say they plan to pursue the merger and fight the antitrust suit filed by the US Department of Justice (DoJ), the withdrawal of the licence applications raises several questions. The most obvious is whether or not there is a need for an expedited hearing with the DoJ, now that there’s no obvious need to rush, since the merger would be ineffective unless the licence transfer were to take place. The antitrust trial was placed on an expedited track at AT&T’s request. This means that the current calendar for the antitrust hearings could be revised.

Out of time

The withdrawal of the licence application also means that it’s virtually impossible for the AT&T, T-Mobile merger to take place within the time limit set in the merger agreement, meaning that AT&T would have little choice but to pay a penalty to T-Mobile. The announcement that it would be taking a pre-tax accounting charge means that AT&T sees a likelihood of less than 20 percent that the merger will be successful within the time limits. This announcement is required by GATT (General Agreement on Tariffs and Trade).

“The nail is in the coffin,” said Andrew Jay Schwartzman, senior vice president and policy director of the Media Access Project, one of the organisations that have been fighting the proposed merger. Schwartzman said that the companies chose to withdraw their applications now so that the FCC won’t move forward with its hearing designation order that would force a hearing before an administrative law judge. He said that before AT&T and T-Mobile re-file any licence applications, they’ll have to reformulate the deal to make it acceptable to the FCC and address the public interest concerns.

“They’ll have to change their claims about jobs,” Schwartzman told eWEEK. In a prepared statement released to the media, he also said, “It is time for vainglorious managers at AT&T to accept that there is no way that this deal can obtain approval of the FCC and the courts.”

A senior executive with one of the primary participants in the antitrust suit against the merger, who spoke with eWEEK on background, suggested that the timing of the licence application withdrawal may be related to the election cycle in theUnited States. He said that it’s traditional that the FCC chairman will resign to let the incoming president appoint someone of their own party. “They’re betting with the Republicans,” the source said.

Upsetting the judge

The same source said that it’s unlikely that Judge Ellen Huvelle will be pleased with the action by AT&T and T-Mobile. “She’ll want to know why she’s been hurrying to get this going if this is what AT&T is going to do.” He also noted that everything in the FCC docket can now become evidence in the antitrust case.

At this point, it’s possible that the FCC will still move forward on its referral of the application transfer to an administrative law judge. If all of the members of the commission choose to vote in favour of the order before the commission acts on the licence withdrawal, then the case can move forward. A source very close to the antitrust case told eWEEK that AT&T especially fears such a hearing because the FCC is not under the same constraints as the DOJ and can hear evidence and witnesses from everyone who filed objections to the merger.

Most of the actions in this case face a very real deadline of 30 November, which is the commission’s next meeting. It’s also the same date that Congress votes on two new appointees to the FCC. While the published agenda for next week’s FCC meeting contains nothing about the AT&T action, it was published before the announcement of the licence application withdrawal.

Ready to serve?

In the long run, the move by AT&T and DT could well mean that the merger is done. It’s likely that AT&T will continue to fight on in the antitrust case, but the chances of that fight succeeding are diminished by the licence application withdrawal.

However, AT&T has vast quantities of money available to fight for the merger through the course and regulatory procedures as long as it has any hope of getting a favourable ruling. On the other hand, DT and its primary owner, the government ofGermany, can’t afford to wait indefinitely.

DT is facing financial and legal issues in Europe, and needs to make something happen relatively soon. The most likely outcome is that AT&T will try to delay payments to T-Mobile, DT will sue, and once that’s settled, the merger will be off and DT will look for another buyer. But what will eventually happen is speculation.

Wayne Rash

Wayne Rash is senior correspondent for eWEEK and a writer with 30 years of experience. His career includes IT work for the US Air Force.

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