FCC Report Shows Doubts About Truth of ATandT, T-Mobile Merger Claims

By Wayne Rash  |  Posted 2011-11-29

FCC Report Shows Doubts About Truth of ATandT, T-Mobile Merger Claims

The Federal Communications Commission told the press today that it has accepted the request of AT&T and Deutsche Telekom to withdraw their license application for the transfer of T-Mobile's spectrum licenses to AT&T without prejudice.

This means that while the license transfer actions are no longer before the commission, they can be refiled. In a highly unusual move, the FCC also released a 266-page staff report detailing the effects of the merger on competition, the public interest and wireless broadband deployment. The staff report also focused on what the commission had previously termed "substantial questions of fact" regarding AT&T's claims in merger documents.

While the public version of the staff report is highly redacted, it makes clear that the commission's staff simply does not believe many of AT&T's claims. The report calls into question the claims of jobs growth, pointing out that AT&T internal documents described efficiencies that would be gained by staff reductions. In addition, the AT&T claims of growth in secondary employment were questioned because they lacked credible evidence. One speaker at today's press call, who cannot be identified because the briefing was on background, said AT&T relied on an old study that looked at the transition from 2G to 4G technology, rather than the change from HSPA+ to LTE that AT&T says it is planning.

Members of the briefing team also said AT&T's engineering and economic studies were flawed in several ways, including overly optimistic predictions and assumptions that were not tied to reality. "We enlisted an army of engineers, economists and lawyers to review AT&T's proposal," one of the briefing panel members explained. That person went on to explain that AT&T failed to meet the burden of showing little competitive harm, "The benefits were insufficient to overcome the harm."

FCC analysts also said an AT&T, T-Mobile merger would lead to substantial job loss, despite AT&T's public claims to the contrary. The staff found that the engineering and economic models were flawed and overly optimistic and that AT&T's claims that it needed T-Mobile to build out its LTE 4G network were not credible.

AT&T and Deutsche Telekom announced on Thanksgiving Day that they would withdraw their license transfer applications. Previously, the FCC announced that a draft order was being circulated that would refer the license transfer to an administrative law judge because of doubts about whether or not the license transfer was in the public interest and because it questioned the veracity of AT&T's assertions regarding the merger's effects.

FCC Chairman Julius Genachowski said after the press briefing that his agency only did its job in reviewing the application and reaching the conclusions stated in the staff report.

"Competition is the engine of our free market economy and a cornerstone of the FCC's mandate. Our review of this merger has had a clear focus: fostering a competitive market that drives innovation, promotes investment, encourages job creation and protects consumers. These goals will remain the focus if any future merger application is filed," Genachowski said.

Meanwhile, stories began circulating during the morning of Nov. 29 that AT&T was in talks with Leap Wireless, the company that sells Cricket phones, to sell T-Mobile assets, including towers, customers and some spectrum, to Leap Wireless if the merger goes through.

ATandT Complains FCC Improperly Released Staff Report


Apparently AT&T is doing this to overcome the opposition of the FCC and perhaps ease the path of the merger itself. However in today's briefing, the FCC made it clear that simple divestiture without satisfying the remainder of the concerns in the staff report is insufficient to get FCC approval for the deal.

The Media Access Project's Andrew Jay Schwartzman said that this deal won't salvage the merger. "It is fanciful to think that Leap would have the resources to buy a large portion of T-Mobile, much less the capital to market itself in new communities," he said. Schwartzman also told eWEEK that it's hard to conceive what Leap would do with T-Mobile assets, since Leap is a prepaid CDMA carrier, while T-Mobile is primarily a post-paid GSM carrier.

Schwartzman also said he is pleased by the FCC's decision to release the staff report, saying that it is important for the public to know what the FCC had spent the public's money on. "AT&T utterly failed to demonstrate that the deal was in the public interest, and the FCC's order will show just why that is," Schwartzman said. "AT&T has built its political campaign for approval on the false notion that buying T-Mobile would somehow create, rather than destroy, jobs. The FCC's evisceration of these claims is especially welcome."

Sprint's Senior Vice President of Government Affairs Vonya McCann joined in praising the FCC's actions today. "The investigation's findings are clear: Approval of AT&T's bid for T-Mobile would lead to higher prices for consumers, eliminate jobs, harm competition and dampen innovation across the wireless industry," McCann said. "These are the same conclusions which led the U.S. Department of Justice and a bipartisan group of attorneys general from seven states and Puerto Rico to sue AT&T, Deutsche Telekom and T-Mobile in federal court in an effort to block the transaction." Sprint is one of the parties involved in the antitrust suit against the merger.

AT&T, however, was not pleased by the release of the staff report. According to a statement by Jim Cicconi, AT&T's senior vice president-External and Legislative Affairs, "The FCC has recognized that it is required by its own rules to dismiss our merger application. This makes all the more troubling their decision to nonetheless release a preliminary staff report on the merger," Cicconi complained.

"This report is not an order of the FCC and has never been voted on. It is simply a staff draft that raises questions of fact that were to be addressed in an administrative hearing, a hearing which will not now take place. It has no force or effect under law, which raises questions as to why the FCC would choose to release it. The draft report has also not been made available to AT&T prior to today, so we have had no opportunity to address or rebut its claims, which makes its release all the more improper."

The posting of the staff report is an unusual move by the FCC. At the press briefing, one of the FCC briefers explained that after all of the work, research and analysis, it was important that the public be able to see the results. He also said that this would show AT&T and Deutsche Telekom what is required to gain FCC approval for any merger. Of course, the document makes clear that it may well be impossible to satisfy the FCC, meaning that the continued attempt to complete the merger is pointless. 

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