AT&T was once the poster child for antitrust enforcement. AT&T hits wall in bid to boost might

The Obama administration’s two-pronged attack on AT&T’s T-Mobile deal represents a sea change in antitrust enforcement that stands to have political and business ramifications far beyond dropped calls and deals for the hottest smartphone.

Some antitrust experts say that the administration’s opposition to the union of the nation’s second- and fourth-largest wireless carriers is a return to the pre- George W. Bush era, when the government was more likely to flex its legal muscle and block deals.


The move could galvanize Republican members of Congress who want to curb the ability of the FCC to challenge mergers on the basis of what’s in the public interest. It also stands to send a message to the business world: there is such a thing as too big to prevail.

“The message to corporations is, ‘You can’t do everything you want,’” said Harry First, an antitrust law professor at NYU School of Law. “Fifteen years ago, a merger like AT&T/T-Mobile wouldn’t have passed the laugh test. Since then it’s become less clear what the DOJ and FCC will or won’t allow. Doing this shows some seriousness about changing merger policy.”

At the same time, First added, the government’s resistance to the deal “may say as much about AT&T’s legal advice in underestimating that things aren’t like they used to be.”

AT&T, of course, was once the poster child for antitrust enforcement. The government broke up Ma Bell in the 1980s. In the three decades since, AT&T has been putting itself back together — a consolidation largely achieved by mergers and acquisitions of local and wireless phone providers including BellSouth, SBC, Cingular Wireless and other giants.

Along the way, it had become accustomed to the government's more recent antitrust litmus test in allowing deals through despite public interest group criticism — like its marriage to SBC in 2005.

Facing a trial with DOJ and a possible hearing by the FCC, AT&T was said to be attempting a Hail Mary play Monday to save the deal and avoid a $4 billion breakup fee by coming up with a plan to divest enough assets and spectrum to clear Justice’s antitrust concerns. U.S. District Court Judge Ellen Huvelle rescheduled Wednesday’s status conference in the U.S. v. AT&T case for Dec. 9. due to a “scheduling conflict,” according to a court notice.

The proposed acquisition of T-Mobile would have made AT&T the largest national wireless carrier, surpassing Verizon Wireless in terms of subscribers and spectrum holdings. But public interest groups sounded the antitrust alarms early on — saying the deal would result in a wireless duopoly.

DOJ is holding the proposed $39 billion deal to a higher standard than recent telecom mergers, which were often viewed on the basis of posing competitive concerns in local markets — like New York City or Houston or Sacramento. In challenging AT&T/T-Mobile, DOJ is arguing that wireless is a national market featuring nationwide pricing plans and coverage, so AT&T’s offers to give up airwaves or customers in some markets are expected to fall short of the government’s goal of maintaining competition.

In its original complaint against the deal, DOJ made clear that it doesn’t want to lose one of the four national carriers operating today. AT&T and T-Mobile compete head-to-head in 96 of the nation’s top 100 markets, and if the merger were approved, the wireless industry in those markets would be highly concentrated, the agency said.

Handing over even a large chunk of airwaves or other assets to a smaller regional carrier such as Leap Wireless or MetroPCS wouldn’t replace T-Mobile’s nationally recognized brand, experts say. By removing T-Mobile as a competitor from the national market, the deal may continue to raise antitrust concerns that DOJ will take to trial. A knowledgeable source said Monday that DOJ has set “a very high bar” for what a settlement would need to include.

DOJ took heat over the past three years for approving some big mergers, albeit with conditions, despite the Obama administration’s pledge to take a tougher antitrust stance. But previous mergers, such as Comcast/NBC Universal and TicketMaster/LiveNation, were vertical mergers that did not pose the same anticompetitive threats.

The combination of AT&T and T-Mobile would be a horizontal merger, seen as more significantly increasing concentration in the market, similar to DOJ’s recent victory to block H&R Block’s acquisition of TaxACT.

“There was an assumption that because other deals were approved that the administration wasn’t serious,” said Kevin Werbach, a former FCC official who is now a professor of legal studies and business ethics at University of Pennsylvania’s Wharton School of Business. “Those deals were closely scrutinized, but they were different. The bottom line is that this was a transaction to move from four to three competitors in a market, which is problematic in most situations.”

Not all agree that the recent actions reflect a market change in antitrust enforcement from the previous administration.

“AT&T/T-Mobile is certainly a transaction that would have gotten scrutiny under the previous administration, as was the H&R Block case,” said Makan Delrahim, a former deputy assistant attorney general for DOJ during the George W. Bush administration. He is now an attorney for Brownstein Hyatt Farber Schreck, which represents clients opposing AT&T/T-Mobile.

Still, he added, “Certainly this administration, particularly at the FTC, has gotten much more aggressive than in the past two decades.”

Justice isn’t the only federal regulator viewing the AT&T deal with more scrutiny. The FCC is also showing signs of expanding the definition of what should be considered in the public interest.

FCC staff said last week that one of the reasons they designated the case for an administrative hearing — the commission’s attempt to block the deal — is that they failed to see evidence that the acquisition would result in more jobs. With 9 percent unemployment in the U.S., that’s clearly an issue for the agency, said Scott Wallsten, vice president for research at the Technology Policy Institute.

“I think this merger became an especially difficult one to get through in the current political climate,” he said.

To get past the DOJ hurdle, the companies needed to show that increased efficiency of the merged entity would outweigh any reduction in competition. But to make the merger politically palatable, they have to show that it would lead to more jobs.

“Those two things are not necessarily consistent,” Wallsten said. “One way to become more efficient is to lay off workers.”

AT&T and T-Mobile are among TPI’s donors.

In making a case for the marriage, the companies also appealed to the FCC’s desire for expanded mobile broadband and a solution to the spectrum crunch by saying the deal would increase network coverage. But the FCC is also concerned about the level of consolidation in the telecommunications industry, as evidenced in its latest report that failed to call the wireless industry competitive even with four national carriers.

“This is the first major transaction that has squarely put any of those issues in front of the FCC,” Werbach said. “The question for the FCC is how to balance the arguable benefits of the merger for AT&T and its own concerns about industry consolidation.”

The FCC’s central message to companies is that innovation is valued over consolidation.

FCC Chairman Julius Genachowski announced his intention to send the case to hearing two days before Thanksgiving when Congress was out of town. That made it more difficult for AT&T to muster political pushback from lawmakers supportive of the deal, Harold Feld, Public Knowledge's legal director, said in a blog post Monday. A day later, AT&T requested to withdraw its merger application from the FCC to focus on winning DOJ's approval — a move Feld and other public interest groups see as an attempt to game the FCC’s procedures.

In a flurry of letters and public statements this year, lawmakers have squared off over the deal’s potential benefits and harms. In the past few days, though, Congress has had little to say about the FCC’s response to the deal.

That could change this week. On Wednesday, the Senate Commerce Committee will grill two new nominees for the FCC — Jessica Rosenworcel and Ajit Pai. Members are likely to press the nominees for their evaluations of the FCC’s efforts.

While they will likely decline to comment about the ongoing proceeding, the hearing could touch off another round of politicking around the deal.

Representatives for committee Chairman Jay Rockefeller (D-W.Va.) and ranking member Kay Bailey Hutchison (R-Texas) both declined to comment Monday.

In the meantime, the merger could further stoke the partisan flames on the House Energy and Commerce Committee, which for months has debated legislation to reform how the FCC operates. One proposal could change how the FCC evaluates mergers and the sort of conditions it can impose on companies to move forward with a transaction.

Tony Romm contributed to this report.

This article first appeared on POLITICO Pro at 6:52 p.m. on November 28, 2011.