Experts Debate Implications of Collapse of AT&T/T-Mobile Deal

The Verizon/cable deals are “running into a lot of resistance” at the FCC and Department of Justice, Pearce said. “It’s back to the drawing board and, clearly, back to the drawing board is what is happening with the Verizon Wireless/SpectrumCo/Cox deals.” AT&T/T-Mobile underscored the key role played by staff at both agencies, Pearce said. Many similar deals are often “proposed by chief executives officers who have never met career bureaucrats who have a great deal of power over the future of these deals,” he said.

In the past, the FCC was willing to allow consolidation as the agency tried to create “two competitive eco-systems” with telecoms squaring off against cable, Pearce said. “Now today, those eco-systems are on the verge of merger with the SpectrumCo deal,” he said. “That’s what’s raising all these flags and that’s one of the reasons this is new and completely different, but not necessarily unanticipated by either the Department of Justice or the FCC.” Pearce noted T-Mobile was in the end-stages of its failed deal with AT&T when Verizon/SpectrumCo was announced. T-Mobile “lost an opportunity to do a deal like SpectrumCo and actually with SpectrumCo,” he said. The AT&T deal dragged on “several months too long” for T-Mobile to strike, he said: “T-Mobile has been denied an opportunity to advance its competitive position.”

"One important constituency are the staffs of both the DOJ and FCC, many of whom have been involved in this industry for a very long time,” agreed David Smutny of Orrick Herrington, formerly with DOJ’s Antitrust Division. They “have seen the industry move from the original divestiture of AT&T, through the beginning of the wireless industry, through the Telecom Act in 1996 and on to today.”

A key lesson to draw from AT&T/T-Mobile is “the DOJ isn’t afraid to challenge deals it thinks are anticompetitive,” Smutny said. “The DOJ leading up to this case had somewhat of a mixed record on merger challenges in the courtroom over the last several years. … The DOJ had not up until now had its sort of signature big merger or other case, big win to point to.” The AT&T case and DOJ’s successful challenge last fall of H&R Block’s buy of smaller competitor Tax Act “has put the department back in the position where it’s willing to flex its muscles” and that could be important as regulators look at the Verizon/cable deals, Smutny said. “The second lesson … is that Department of Justice is not afraid to change its analytical approach when the circumstances warrant it.” He said deals among the big four carriers will be “very challenging,” but there probably still are some consolidations DOJ would approve.

But Donald Evans of Fletcher Heald counseled against drawing too many lessons from AT&T/T-Mobile. “I'm not sure the AT&T/T-Mobile [deal] is quite the sea change that some people do. … I used to say that the FCC never met a merger it didn’t like and that was almost universally true.” AT&T/T-Mobile was “almost the perfect storm of anticompetitive evils,” Evans said. He noted the FCC last week let Dish Network “acquire the only two Mobile Satellite Service carriers in the 2 GHz band” and previously allowed a deal between Clearwire and Sprint Nextel, “the only two players in the 2 GHz” broadband radio service band. Evans questioned whether the regulatory landscape has changed completely with the AT&T/T-Mobile withdrawal. “I don’t place a lot of faith in the FCC’s backbone, I guess, to stand up against mergers, because they certainly have demonstrated an inclination to approve them, except in very rare cases.”