State Regulators Put AT&T/T-Mobile Review on Ice

California Public Utility Commission Administrative Law Judge Jessica Hecht is suspending the due dates for the comments and reply comments on the AT&T economic model in the AT&T/T-Mobile proceeding, a spokesman said. The comments and reply comments were previously scheduled for Thursday and Sept. 9, respectively. Hecht is working with the assigned commissioner’s office and staff to assess the effect of the development on CPUC’s proceeding, he said. Further guidance and information on the schedule for the proceeding will be announced later, he said.

The Hawaii Public Service Commission is reviewing the DOJ complaint and assessing the impact on its review process, a spokeswoman said. The commission is unlikely to proceed with a federal litigation pending, she said. Attorneys general in states like Connecticut will review the DOJ complaint, but declined to comment. Even if states proceed and approve the deal, it’s hard to see how state approvals would prevail with a federal litigation pending, a state regulatory analyst said.

Public Knowledge said in a letter to the FCC that DOJ has found “the merger would significantly lessen competition in two nationwide product markets: consumer mobile wireless telecommunications services and enterprise/government mobile wireless telecommunications services.” Even if the FCC restricts its analysis to just these two markets, the agency is obliged to reject the deal under Section 314 of the Communications Act, which prohibits the agency from approving deals that reduce competition for any international phone service, the group said. “The Justice Department has done its job,” said Public Knowledge Legal Director Harold Feld. “Now the FCC should do its job, follow the law, and reject the takeover of T-Mobile."

The U.S. government has a mixed record of pursuing litigation to halt deals, said analyst Jeff Silva with Medley Global Advisors. A court case loss could lessen the Obama administration’s ability to impose consumer protection/competitive safeguards more than if DOJ and AT&T reached a negotiated settlement, he said. The administration also faces a backlash from some in the Democratic base such as organized labor, minorities, House Democrats, and state and local officials who support the deal, he said. A DOJ settlement with AT&T remains a distinct possibility, he said. The FCC has never approved a merger that was challenged in court by the Justice, said Dave Novosel with Gimme Credit.

The collapse of the deal could be bad news even for AT&T’s rivals, some analysts said. DOJ’s move could put T-Mobile back in play as a potential merger candidate for carriers like Sprint Nextel, some said. But a reading of the DOJ’s complaint makes it clear that a Sprint/T-Mobile pairing would be equally unacceptable, Bernstein Research analysts said. That means Sprint would regain a competitor forced to re-energize its competitiveness in Sprint’s core middle market, they said.

The collapse of the deal is also bad for Verizon Wireless, which would have benefited from a more economically rational industry structure, Bernstein said. The only real winners could be the pay-TV providers, the firm said. The move would significantly reduce the near-term risk of a good-money-after-bad investment in Clearwire and/or Sprint, they said. Additionally, Deutsche Telekom now re-emerges as a potential buyer of cable’s unused AWS spectrum, they said. Collapse of the deal is also bad news for prepaid carriers because T-Mobile has been a strong competitor in the low-end wireless service market, said Credit Suisse’s Jonathan Chaplin.

Meanwhile, a few critics of DOJ’s action suggest that rejection of the merger shows an administration hostile to business. “There is little doubt that the agency’s action will further heighten concerns that the Administration’s regulatory zeal is dampening job growth and investment prospects,” said Free State Foundation President Randolph May. “Because the high-tech sector is one of the few areas that is generating jobs and investment in today’s weak economy, the message sent by DOJ’s action is not likely to be perceived as helpful in restoring confidence that the Obama Administration ‘gets it’ regarding the economy.” Less Government President Seton Motley said “this is a government which has ensconced this nation in an inert economy and 9+ percent unemployment. It has … demonstrated itself to be woefully ill-equipped to execute any sort of nuanced free market analysis."

The DOJ’s actions weren’t justified based on the economics, said Robert Hahn, director of economics at the Smith School at Oxford University. “There is ample evidence supporting the position that the wireless industry is competitive,” he said. “One need only look at prices, usage and quality of service over time. In my opinion, the DOJ should focus more on actual performance measures and less on traditional market share analysis."

A senior Republican senator sounded the first protest from Capitol Hill of DOJ’s lawsuit against the AT&T/T-Mobile deal. In a statement late Wednesday, Senate Antitrust Subcommittee Ranking Member Mike Lee, R-Utah, said he was “disappointed” with the Justice Department. “The Senate Antitrust Subcommittee received significant evidence that the transaction could benefit consumers through enhanced service quality, expanded network capacity, increased data speeds, and continued innovation of data-rich handset devices and applications,” Lee said. “I … trust that the merger review process will be directed towards maximization of consumer welfare.”