Potential AT&T/T-Mobile Divestiture Targeted; Merger Analysis Debated
MetroPCS and Leap Wireless are interested in assets that AT&T might have to divest as a condition on its $39 billion acquisition of T-Mobile USA if the deal gets approved, the prepaid carriers’ executives said during a J.P. Morgan conference with investors on Tuesday. Meanwhile, while panelists at a Broadband Breakfast Club event agreed that divestiture is highly likely, they debated over a possible approach to review the deal.
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Chairman Julius Genachowski Tuesday appointed Renata Hesse as senior counsel to oversee the deal. Hesse, who the FCC emphasized is “no relation to Sprint CEO Dan Hesse,” will head the working team that’s conducting the review and will oversee the inter-bureau steering committee established to coordinate the agency’s review of the merger application. Hesse is a partner in the Washington, D.C., office of Wilson Sonsini, where her practice focuses on antitrust litigation and counseling. Genachowski last year named another FCC outsider to head the agency’s review of Comcast’s purchase of control in NBCUniversal.
MetroPCS Chief Financial Officer Braxton Carter and Leap CFO Walter Berger didn’t speculate on what assets might be divested, but said their companies are open to pursuing opportunities that make sense. The merger would put AT&T in a significant spectrum position, which concerns MetroPCS, Carter said at the investor conference in Boston. There could also be opportunities with potential spectrum disposition, he said. MetroPCS is also interested in working with LightSquared, Carter said. Leap Wireless, which has signed a roaming agreement with LightSquared, is open to other wholesale opportunities, Berger said.
The Justice Department is likely to require the companies to divest local markets, Justin Hurwitz, a law professor with George Mason University, told the breakfast event in Washington. He cited previous merger conditions. The Communications Workers of America supports any reasonable potential deal conditions, said Debbie Goldman, the union’s telecom policy director. As the FCC reviews the transaction, it should set a timetable for the review and set benchmarks to ensure that AT&T fulfills it’s obligations, she said.
The DOJ is likely to conduct merger analysis on a local market-by-market basis, said Hurwitz. The agency would be looking at issues like local competition, he said. The question for the agency is: will the merger make things worse, he said. There’s no reason that regulators shouldn’t review the deal on a national basis, said Ernesto Falcon, director of government affairs with Public Knowledge. The “unprecedented” deal is about two national carriers combining, he said, saying it would increase prices and harm innovation. The potential impact on consumers would be “dramatic,” he said. Sprint Nextel would have to be a consolidation target if the merger is approved, he said.
The FCC has a broad mandate that allows it to look at the implications of the $25 billion in cash that Deutsche Telekom would get if the deal is OK'd, said Alan Pearce, president of Information Age Economics. Congress and the White House are preoccupied with debt, which could be folded into the merger debate due to the large amount of cash that could be going to DT, he said. Some large states with expertise and resources in telecom issues will be involved in the review, but most won’t, partially due to budget constraints, said Pearce. States like California could work independently and cooperatively with the FCC on the deal, he said. Telecom services are local and regional services, so state commissions have responsibilities to protect consumers, he said. Some states would be working with the FCC and DOJ throughout the process, Hurwitz said. If states disagree with DOJ’s decision, they can independently bring a lawsuit, he said.
There were other potential buyers of T-Mobile, including a hedge fund, CWA’s Goldman said. Those buyers don’t have the expertise and resources to run a wireless company, she said. AT&T and T-Mobile use the same technology, which would let the acquirer easily integrate T-Mobile assets, she said. It’s hard to find a company that can run a network and service millions of consumers well, Hurwitz said. In previous mergers where the DOJ has required divestitures, the agency had always struggled to find entities to run the divested assets, he said. Some companies haven’t followed approval conditions, said Caressa Bennet, general counsel with the Rural Telecom Group. AT&T’s acquisition of more spectrum would be anti-competitive, she said, citing rural carriers’ difficulty in getting access to AT&T’s spectrum.