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AT&T offers up spectrum, as states join DoJ lawsuit

Posted By TelecomTV One , 20 September 2011 | 0 Comments | (0)
Tags: mobile cellular AT&T T-Mobile FCC legal spectrum

As seven state attorneys general join the Department of Justice’s antitrust lawsuit, AT&T is rumoured to have made a last-minute move to save its T-Mobile deal and wants to share assets with other operators. Guy Daniels reports.

AT&T remains undeterred by the recent set-backs in its planned $39 billion acquisition of T-Mobile USA. First, the Department of Justice instigated an antitrust lawsuit on August 31 against AT&T and T-Mobile (together with its parent company Deutsche Telekom), which is due to be heard in a federal court in Washington, DC, with preliminary hearings starting tomorrow.


Then on Friday, Attorneys General from seven US states joined the Justice Department’s lawsuit to block the deal. The seven states are New York, Washington, California, Illinois, Massachusetts, Ohio and Pennsylvania.


But AT&T is not defeated yet. It has already received letters of support and endorsements from 11 states, various politicians, industry bodies, and certain trade associations who quite frankly should know better.


So desperate is AT&T for this deal to go through, that it has allegedly come up with a proposal that is both incredulous and legally dubious. It has chosen some of its smaller rivals and offered to sell them some of its spectrum. That’s right, the spectrum that AT&T has been complaining that it does not have enough of, hence the need to acquire T-Mobile. Suddenly it has so much that it can afford to give some away.


We have to note that this deal has not yet been confirmed (or denied) by AT&T. The source comes via a Bloomberg report yesterday, citing “two people with direct knowledge of the situation” who remain unidentified.


The companies said to have been approached by AT&T are Sprint Nextel, Metro PCS, Leap Wireless, Dish Network and CenturyLink. None have commented on the report.


And let’s not forget the legal aspects of this proposal. Any spectrum sale or transfer would require FCC approval – which we presume hasn’t been pre-agreed with the regulator. It cannot promise to transfer spectrum without the FCC’s permission. At least it means AT&T can demonstrate to the Justice Department that it is negotiating with other wireless companies, and can be seen to be listening – although whether the DoJ deems it sufficient is a another matter.


In its lawsuit, the DoJ recognised that T-Mobile has big ambitions. Citing its 2012 business plan, it noted that the telco wanted to become a bigger player with the stated goal of growing enterprise revenues substantially by 2013. By removing T-Mobile from the market (via the AT&T acquisition), the DoJ argues that it would decrease competition in the enterprise and government sectors:


“AT&T's acquisition of T-Mobile therefore removes potentially the most attractive bidder from many bid situations.

Accordingly, the merged firm likely will have a reduced incentive to submit low bids.”


The DoJ is also concerned that it would take a significant amount of time for a new competitor of T-Mobile’s size to emerge and affect the market dynamics.


“Entry by a new mobile wireless telecommunications services provider in the relevant geographic markets would be difficult, time-consuming, and expensive, requiring spectrum licenses and the construction of a network.”


T-Mobile’s current competitive presence in the lower end of the market is one of the main reasons the seven Attorneys General joined the DoJ lawsuit. New York Attorney General Eric Schneiderman said in a statement:


“This proposed merger would stifle competition in markets that are crucial to New York’s consumers and businesses, while reducing access to low-cost options and the newest broadband-based technologies.”


Here are other quotes from the various AGs, as gathered by the Stop the Cap website. First, Massachusetts Attorney General, Martha Coakley:


“The proposed merger would create highly concentrated markets in Massachusetts and could lead to higher prices and poorer service.”


Illinois Attorney General, Lisa Madigan, adds:


“Blocking this acquisition protects consumers and businesses against fewer choices, higher prices, less innovation, and lower quality service.”


And California Attorney General, Kamala Harris, comments:


“Enforcement of antitrust law is the responsibility of the Attorney General and is vital to protecting our state’s economic strength and tradition of innovation for the betterment of all Californians.”


Even if they eventually get the DoJ on its side, AT&T and T-Mobile still need FCC approval to complete the transaction. And if the deal isn’t completed by next September, AT&T has agreed to compensate Deutsche Telekom with $3 billion in cash, as well as wireless spectrum and roaming agreements.


When AT&T agreed to make divestments to Verizon as part of its acquisition of Centenniel (a process which took almost a year), the FCC required that it transfer the systems to a third party trustee, pending acceptance of an application to transfer the systems to someone else. This week’s proposed sale of spectrum is a major departure from the usual rules and practices of spectrum or licence divestiture, insofar as AT&T may be looking to have specific buyers in mind. As Harold Feld writes on the Wet Machine blog:


“That isn’t something DoJ can agree to on its own. It would have to make any settlement contingent on FCC approval of the specific transfers – which would mean holding approval of the merger until AT&T and T-Mobile, and whoever else is supposed to get chunks of T-Mobile systems, filed new applications at the FCC. This would start the process all over again, as the FCC would be required to put the new applications out for public notice and take comment, and consider whether the newly configured transfer was in the public interest. Meanwhile, we pass September 2012 and DT collects its break up fee.”


Sprint, which is the third-largest mobile operator in the US, filed its own antitrust lawsuit against the T-Mobile deal earlier this month. Last Friday it requested that its complaint be heard in parallel with the DoJ lawsuit. A Sprint spokesperson told Ars Technica that:


“We will be in Court on Wednesday for the judge’s scheduling conference with the DoJ and AT&T. At this point, we don’t know what she will rule or when she would rule, but in our motion from Friday, it’s pretty clear that AT&T intends to file a motion to dismiss our suit.”


Judge Ellen Huvelle will preside over the preliminary hearing on Wednesday. A trial date has not yet been set, but the DoJ wants it for March 12 next year, with AT&T pushing for an earlier date of January 16.



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