AT&T, DOJ at Odds on Start Date for Judge to Hear Arguments on Merger Lawsuit

Both sides are headed to court Wednesday for a preliminary conference before Huvelle, who has handled many other antitrust cases in the 11 years she has been a judge for the U.S. District Court for the District of Columbia. “The parties have reached agreement on all aspects of the proposed Order, except an actual trial date, which impacts the intervening dates,” DOJ said in its filing with the court.

The hearing is expected to be over quickly, said an industry official who is following events closely. Sprint Nextel is expected to make its pitch at the hearing on combining its case against AT&T/T-Mobile with DOJ’s case. Huvelle will likely ask a few questions about a settlement and could call attorneys into her chambers for private discussions, the official said. She could hand down a decision on a trial date immediately.

Public Knowledge Legal Director Harold Feld said it’s not surprising DOJ wants extra time. “Since DOJ has the burden of proof they are the ones who are disadvantaged if they don’t have the opportunity to prepare their case,” Feld said. “If this were an FCC hearing, AT&T would have the burden of proof to show that the merger is in the public interest. Because this is a civil enforcement matter, it’s DOJ that has the burden of proof. They understandably want a little more time."

Industry analysts said Tuesday they're skeptical that AT&T and DOJ will be able to agree to a settlement. “There’s no lack of effort, but The DOJ hasn’t left itself a lot of wiggle room,” said Sanford Bernstein analyst Craig Moffett. “I have a hard time envisioning a solution that would satisfy the issues raised in the DOJ complaint."

Jeff Silva with Medley Global Advisors said Huvelle has not been afraid to overturn government opposition to previous mergers. Most notably, in a case that went to trial, she rejected DOJ’s bid to block SunGard Data Systems’ $825 million buy of Comdisco’s computer disaster recovery business. “It’s possible, at a minimum, that the status conference could offer clues to whether the case will head down a settlement path or a contentious litigation path,” Silva said. “Early indications thus far suggest the Justice Department is serious about wanting to block the merger. But that doesn’t necessarily mean game-over for AT&T because it will be defending the transaction before a judge who once before has thwarted a government antitrust action.”

"A deal won’t be easy to reach,” said Paul Gallant, analyst at MF Global. “AT&T is highly motivated, but DOJ set a pretty high bar in their court filing."

One hundred House Republicans, meanwhile, protested the DOJ lawsuit and urged a settlement, in a letter Tuesday to President Barack Obama. “If your Administration is truly committed to creating jobs, you should let the private sector do so, not erect impediments to job creation based upon a flawed understanding of the competitiveness of the U.S. wireless market,” the Republicans said. AT&T’s commitment to deploy mobile broadband to 97 percent of the country and invest $8 billion “is the type of private sector stimulus our economy desperately needs,” they said. The Republicans also praised AT&T for committing to bring 5,000 call center jobs back to this country. The administration “should not be turning away offers by the private sector to bring jobs back to the United States,” the Republicans said. The letter’s signers include House Oversight Committee Chairman Darrell Issa, R-Calif., and former House Commerce Committee Chairman Joe Barton, R-Texas.

The Justice Department declined an invitation to provide Capitol Hill briefing requested by House Commerce Committee Republicans (CD Sept 12 p11). Chairman Fred Upton, R-Mich., Communications Subcommittee Chairman Greg Walden, R-Ore., and Barton, asked for the briefing. In letters to each member dated Monday, Assistant Attorney General Ronald Welch said the department is “not in a position at this time to provide a briefing as you have requested because this matter is in active litigation.” While DOJ has “long recognized the legitimate Congressional interest in information about how the Department enforces the law, our disclosure of non-public information about matters in litigation outside of the judicial process complicates and may jeopardize our law enforcement efforts, as well as inescapably creating the risk that the public and the courts will perceive undue political and Congressional influence over litigation decisions,” Welch said.

Welch reiterated DOJ’s arguments for challenging the wireless deal, in his letter to the House Republicans. “The Department gave serious consideration to the efficiencies that the merging parties claim would result from the transaction,” Welch said. “The Department concluded AT&T had not demonstrated that the proposed transaction promised efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers. Moreover, the Department observed that AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor."

Free Press and Public Knowledge said to ignore the 100 House Republicans who wrote Obama. The deal will kill jobs and reduce wireless investment, the groups said. “If you want to know why these members of Congress would repeat something they know or should know to be false, you may want to check their campaign contributors,” said Free Press Action Fund CEO Craig Aaron. Public Knowledge CEO Gigi Sohn said AT&T lobbyists recently sent invitations to the fundraiser of the letter’s lead author Rep. Pete Olson, R-Texas. AT&T didn’t immediately comment. “AT&T is not hosting the event this week, but they have been a long time supporter of Congressman Olson and employ thousands of people in the State of Texas,” an Olson spokeswoman said. “This letter simply urges the President to focus on creating jobs in America and bringing other jobs back from overseas to further strengthen our economic recovery."

AT&T, meanwhile, is taking on Sprint in an ad that contrasts AT&T’s spectrum holdings with spectrum held by Sprint in combination with Clearwire. “Sprint owns a majority economic stake in Clearwire, and the FCC treats them as one when analyzing spectrum holdings,” AT&T said. “Together they control over one-third of the mobile wireless spectrum held by U.S. wireless carriers -- far more than any other provider. You can’t blame them for wanting to keep it that way.” The ad says AT&T will use T-Mobile spectrum to create an LTE network serving 97 percent of the U.S. “By investing an additional $8 billion we can build this national network, and in the process create between 55,000 and 96,000 American jobs,” AT&T said. “That’s our plan. What is Sprint’s plan?”

Feld questioned reports that AT&T might be able to keep its proposed buy of T—Mobile alive by negotiating agreements to sell some of its spectrum to MetroPCS, Leap and other competitors. “AT&T’s claims to be negotiating such settlements should be greeted with a healthy dose of skepticism,” Feld said on his blog (http://xrl.us/bmdxp2). “The sheer regulatory mechanics of such a settlement make it highly improbable, if not outright impossible for AT&T to negotiate and get approval for such a settlement before T-Mobile can claim its break up fee.” Any settlement would require AT&T to sell off spectrum to specific entities, which would require FCC approval. It’s not something the DOJ “can agree to on its own,” Feld noted. “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.” The process would take many months to complete, meanwhile, T-Mobile parent Deutsch Telekom is slated to collect a break up fee if the AT&T/T-Mobile deal isn’t complete in September 2012, he said.