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AT&T has until Jan. 12 to decide whether it wants to proceed with its plans to buy T-Mobile USA by finding some way to restructure the deal so it can pass antitrust and regulatory review.
The clock is ticking for AT&T after U.S. District Court Judge Ellen Huvelle agreed Dec. 12 with a request by the U.S. Department of Justice and AT&T to cancel the Feb. 13 start date for the trial of the government’s antitrust suit seeking to permanently block the $39 billion buyout of T-Mobile USA.
A day later, Huvelle also agreed to postpone the antitrust suits filed against AT&T by rivals Sprint Nextel and C-Spire (formerly Cellular South).
Huvelle has given AT&T until Jan. 12 to inform the court of its plans for the merger. AT&T had said in its request that it needed more time to restructure the merger so that it could meet regulatory approval.
Up until Dec. 12, AT&T had insisted that the trial move forward as quickly as possible to try to meet its own timetable for completing the buyout. Now the company needs to explain to the judge whether it plans to move forward at all.
This delay effectively kills the merger. AT&T has a deadline to complete the merger by the end of September 2012 or pay Deutsche Telekom, the owner of T-Mobile USA an estimated $4 billion in breakup fees and additional spectrum. AT&T apparently revised its position on the merger after it clearly angered Huvelle in a series of strategic moves that, among other things, resulted in the cancelling of its license transfer applications with the FCC.
“We don’t have any confidence that we are spending all this time and effort and taxpayers’ money and that we’re not being spun,” the jidge said during a Dec. 9 court session. Huvelle added that it appeared that the antitrust case before her was moot and that she could think of no reason to accommodate AT&T’s request for an expedited hearing of the Department of Justice’s antitrust suit seeking to permanently block the deal.
At this point, any sort of a merger deal will result in a delay that could be unsustainable by AT&T and T-Mobile. Eventually, the merger would have to contend with the FCC, which has taken a position clearly opposing the license transfer and published a report from the FCC’s staff report strongly opposing the transfer of necessary wireless spectrum licenses and AT&T’s subsequent withdrawal of its application for those transfers renders the merger deal and the antitrust case moot.
Cecilia Kang, writing in The Washington Post, said that AT&T managed to offend the court by appearing to use a court decision in its favor to force the acceptance of the merger by the FCC and at the same time offend the FCC with a strongly worded statement, followed by an even more strongly worded screed sent out the next day as a response. It’s worth reading the decidedly unfriendly comments to both these blog entries.
While Huvelle won’t make a determination on how she intends to dispose of the AT&T merger until the Jan. 18 hearing, an extremely in-depth look at how AT&T blew its chances published in The Washington Post over the weekend makes it clear that this merger won’t happen. AT&T, which is the top spender of lobbying dollars in the United States, went one step too far in its assumption that a company could lobby its way through the federal regulation process. It turns out that AT&T was wrong.
ATandT Hubris, Miscalculation Killed Merger
But it wasn’t Huvelle or the FCC that killed the merger; it was AT&T that delivered the self-inflicted fatal wound. AT&T approached the merger from a position of arrogance supplemented with lies. The company lied about how buying T-Mobile would somehow expand its coverage in the United States. It lied about job creation. It lied about the level of public support. An examination of the organizations and legislators backing the merger revealed a common thread: Each had received thousands of dollars from AT&T in return for support.
Compounding its problems, AT&T then had the hubris to blame the FCC for its regulatory problems and the Department of Justice for its legal problems.
Worse yet, AT&T tried to get the FCC and the DOJ to play off against each other, first by pulling its license application and then trying to continue its antitrust defense. The idea was that if AT&T prevailed, it could force the FCC to approve the license transfers. It was a desperate move and one that has now looks as if it will serve as the final nail in the merger’s coffin.
Unfortunately, as AT&T flails about in desperation, it’s creating a lot of collateral damage. AT&T is trying to stem the bleeding by running a nearly nonstop series of ads in all media that make it seem that the merger is still alive and tout what a good thing it will be. These ads mention nothing about the fact that AT&T has already announced that it will take a charge against profits to pay Deutsche Telekom the break-up fee for the failed merger. The ads did, however, play a role in the FCC’s decision to release the staff report on the license-transfer application that AT&T is so upset about.
The damage is also hurting T-Mobile. While the company is aggressively courting new customers and for the first time is trying to sign up business customers, the uncertainty about the merger is surely playing a role in the steady departure of T-Mobile subscribers. I also suspect (but can’t prove) that AT&T sold DT management on the idea that the merger would sail through the regulatory process. If DT had any idea that things could fall apart as they have, it’s doubtful the company would have agreed to the deal.
One reason that DT wouldn’t have agreed is because the company is already having serious financial and legal problems in Europe. While a quick sale of T-Mobile USA would help rescue DT from its European problems, a protracted legal battle is probably the last thing that the company needs. Now that the merger appears dead, DT is stuck with a subsidiary that has diminished value, a shrinking subscriber base and an image that has become tarnished by its association with AT&T.
So what’s next? Now that AT&T finally realizes what the rest of the world already knows, which is that the merger is dead, there’s been speculation that AT&T might enter into a joint venture that would let them share each other’s networks more than they do now. But it’s also possible, even likely, that T-Mobile will seek another suitor. Perhaps now it’s Google’s time to add a carrier to fill out its wireless presence. But that is a deal that is sure to raise antitrust and regulatory questions of its own.