Federal Communications Commission Chairman Julius Genachowski has begun circulating a draft order that would refer the proposed transfer of T-Mobile’s licenses to AT&T to an administrative law judge for trial on the grounds that the transfer isn’t in the public interest and should be denied.
According to sources at the FCC who spoke on the condition of anonymity, the order, if approved by the full commission, would delay any merger far beyond the end of any antitrust actions by the U.S. Department of Justice.
The FCC staff officials who briefed reporters Nov. 22 said that such a referral to an administrative law judge happens when there are substantial questions of fact or questions about the license transfer being in the public interest. One staff comment released today is that if the merger violates antitrust rules, “it can’t possibly be in the public interest.” Meanwhile, a senior FCC official said, “The record clearly shows that-in no uncertain terms-this merger would result in a massive loss of U.S. jobs and investment.”
According to FCC officials deeply familiar with the staff analysis of more than 200,000 pages of documents, 100 meetings with interested parties, 30 meetings with the applicants and 50 petitions to deny, the staff has concluded that the proposed merger would significantly diminish competition by an amount they said was “unprecedented.”
The staff reports said that they have never seen anything like this proposal, which they said would result in the largest market concentration in history across 99 of 100 markets studied. The only market where it would not increase market concentration is in Omaha, Neb., where T-Mobile does not operate at all.
According to another FCC official, the decision to refer the matter to an administrative law judge was based on internal materials the commission obtained from AT&T and T-Mobile. From these documents, the staff concluded that some of the claimed benefits of the merger were not supported by facts. The staff concluded that the merger would lead to massive job loss and would have no significant effect on any 4G rollout.
A decision by the full commission is expected in the coming weeks. Once that happens, the administrative law judge, who has not been selected yet, could begin discovery and hear motions. But the actual trial of the facts would not begin until after theU.S. Department of Justice antitrust suit against AT&T concludes. If DOJ prevails and the merger is enjoined, then the FCC hearing would be dropped as moot. However, if AT&T prevails or if there is a settlement, then the FCC review of the transfer of T-Mobile’s licenses would continue on a separate course.
The trial before the administrative law judge would take months to complete, effectively putting any merger on hold for a significant period of time. Even if the antitrust suit comes out in AT&T’s favor, the FCC could still prevent it by denying any license transfer. Once the trial ends, the administrative law judge presents the court’s findings to the FCC.
ATandT, T-Mobile Express Dismay Over FCC Stance
AT&T understandably is not pleased with the FCC’s actions today. Larry Solomon, AT&T’s senior vice president of Corporate Communications, said in a prepared statement, “The FCC’s action today is disappointing. It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both. At this time, we are reviewing all options.”
T-Mobile USA spokesman Tim O’Regan, the company’s director of public affairs, also expressed disappointment. “It is unfortunate that the FCC has decided to move in the direction of an administrative hearing regarding our transaction with AT&T,” O’Regan said in a prepared statement. “Nonetheless, we are confident in the merits of our deal and that it is in the public interest.”
Opponents of the merger were quick to voice their delight at the action. Sprint’s Senior Vice President of Government Affairs Vonya McCann also issued a statement, saying, “As Chairman Genachowski said in August when the Justice Department filed its antitrust lawsuit against AT&T, the record before the FCC presented ‘serious concerns about the impact of the proposed transaction on competition.’ That record is complete and more than justifies moving this matter to an Administrative Law Judge for a hearing. We appreciate Chairman Genachowski’s leadership on this issue and look forward to the FCC moving quickly to adopt a strong hearing designation order.”
Meanwhile, one of the public interest groups active in the AT&T-T-Mobile merger also expressed approval of the FCC’s stance.Free Press CEO Craig Aaron said, “We applaud the FCC chairman for standing up for the public interest and saving American jobs, despite intense pressure from AT&T’s army of lobbyists. We are pleased that Chairman Genachowski sees through AT&T’s blatant lies and misleading advertising campaign, because there is no disputing that this merger would kill tens of thousands of jobs, raise prices for consumers and kill competition in the wireless market. The Department of Justice and the FCC both agree that this merger is a bad deal, and it’s time for AT&T to walk away.”
The Media Access Project, which has been actively fighting AT&T’s advertising claims, sounded its own note of approval. “MAP is particularly pleased that the Commission appears to have been unswayed by AT&T’s highly misleading TV and radio advertisements falsely claiming that the merger would create ‘up to 96,000 jobs.’ In fact, asMAP explained in letters to TV stations, the highly dubious study on which AT&T relied actually claimed that the merger would generate 96,000 ‘job years,'” Andrew Schwartzman, MAP’s senior vice president and policy director, said in a statement.
While the FCC action won’t kill the merger outright, it does pose a huge, perhaps insurmountable, stumbling block to the deal. It’s clear that the FCC staff doesn’t believe AT&T’s claims, and it’s clear that the FCC chairman shares that view. While it’s possible that the commission as a whole could refuse the draft order, it’s unlikely. Right now, the most likely outcome is that eventually it will come to trial, unless the DOJ beats the FCC to it.