FCC Chair to Put AT&T/T-Mobile Merger on the Grill

The proposed AT&T/T-Mobile merger hit another obstacle Tuesday when the chairman of the FCC called the deal harmful to consumers. AT&T (NYSE: T) will have to prove otherwise if FCC Chairman Julius Genachowski gets his way. He's asked that the other commissioners approve an administrative hearing on the issue, expressing concern that the US$39 billion deal would create too much concentration in the wireless market, kill jobs and be overall detrimental to consumers. His appeal to the other commissioners is the first such request since 2002, when a potential deal between EchoStar (Nasdaq: SATS) and DirecTV (Nasdaq: DTV) was put under the microscope. Since AT&T's intention to buy smaller rival T-Mobile was announced in March, consumer groups and other wireless providers have warned the deal between the second- and fourth-largest U.S. carriers would create a duopoly and stifle competition in the industry. A Department of Justice lawsuit to block the deal in August further deterred the plan, and more lawsuits from several states' attorneys general followed. Weighing the Options Cutting its losses and abandoning the deal would be costly for AT&T. The carrier has agreed to pay Deutsche Telekom (NYSE: DT), the parent company of T-Mobile, $3 billion in fees and rights to acquire the company, an amount it promised even if the deal didn't go through. AT&T is also on the hook to shell out $3 billion to $4 billion to T-Mobile in assets if the merger doesn't work out. If the FCC presses the issue, the carriers will have to face federal opposition from both the FCC and the DoJ. Each argument will address slightly different topics. "The DoJ suit focuses on whether the merger as proposed by the parties is likely to have an adverse effect on competition among cellular service providers. FCC approval is required to transfer operating licenses, and its review focuses on whether individual license transfers are in the public interest," Craig Bachman, parter at Lane Powell PC, told the E-Commerce Times. Though AT&T would be granted the right to argue against claims that the license transfers aren't in the public interest, the two hurdles -- especially from the FCC, an organization that hasn't made that kind of move in nine years -- indicate the company will face an uphill battle. Possible Defense If the chairman's request goes through and the deal is reviewed, it probably won't start until after the DoJ trial against AT&T, scheduled to begin in February. If the company strikes a compromise with Justice to end that litigation, it would have to reevaluate the merger and present its case again before the FCC. Since the intended merger was announced, the companies have maintained that with its multibillion dollar play to expand broadband coverage to rural areas, it would create thousands of domestic jobs. It's a claim AT&T has highlighted more as opposition to the merger increases and unemployment problems in the U.S. persist. Following the FCC chairman's request, AT&T officials commented on missed opportunities to create jobs and spur innovation if the merger doesn't go through. Critics, however, aren't buying it. "The record clearly shows that, in no uncertain terms, this merger would result in a massive loss of U.S. jobs and investment," a senior FCC official told the E-Commerce Times in a statement provided by Neil Grace, press secretary in the office of the chairman at the FCC. AT&T countered that since so much of the merger is focused on expanding coverage, especially with speedier 4G LTE wireless technology, the deal would not only create jobs in the implementation of that network, but would also increase coverage nationwide. "Competition in the industry focuses on technology evolution, customer acquisition and customer retention. Revenue per user and average margin per user have been declining for both companies as users move to integrated devices such as smartphones and therefore use less voice and more data transmission," said Bachman. AT&T did not respond to the E-Commerce Times' requests for comment.