As the dust settles from AT&T’s decision to pull its merger application from consideration by the Federal Communications Commission (FCC), attention turns to the FCC staff report that led up to a major setback for the largest proposed merger of the year.
AT&T is still pursuing its merger with T-Mobile, but the companies will eventually have to resubmit their application to the FCC – as well as successfully navigate the lawsuit the Antitrust Division of the Department of Justice (DOJ) has filed against the merger. Even if AT&T prevails in the DOJ litigation, it will still need to go back to the FCC and overcome resistance there.
That FCC resistance is best reflected, for now, in the staff report on the merger which the agency released last week. The report concluded that the merger would not be in the public interest and recommended that the Commission designate it for a public hearing before an FCC administrative law judge. AT&T promptly issued a scathing response.
The FCC staff report specifically concluded that “significant harms to competition are likely to result [from the merger], primarily in the form of increased prices for consumers, reduced incentives for innovation, and decreased consumer choice.”
The report further found that the “bulk of” the merging companies’ “proffered benefits [of the merger] are inadequately supported by the data supplied, achievable through means other than the elimination of competitor, or otherwise not cognizable under the Commission’s public interest standard.”
AT&T had argued to the FCC that the merger would speed up the expansion of AT&T’s next generation 4G Long Term Evolution (LTE) network and provide it with additional mobile spectrum it needs for the growing data traffic over its network. Thanks to increased smart phone use, data traffic over its network has increased by 8,000% over the last four years.
The report alleged that T-Mobile has acted as a pricing innovator and disruptive force in the national mobile telephony market in the past several years, such as by offering unlimited data plans.
FCC staff members were not convinced by AT&T’s arguments that T-Mobile faces financial difficulty and is losing subscribers, as evidenced the decision of its German owners to sell the company to AT&T. According to the report “although T-Mobile faces challenges as the industry develops and responds to the increasing data demands of consumers, the record does not support the bleak short-term outlook for T-Mobile that AT&T has portrayed in its submissions.”
Two days after the FCC issued its staff report, AT&T released a sharply worded response, characterizing the report as “obviously one sided.” The company continued:
[A]ny fair-minded person reading it is left with the clear impression that it is an advocacy piece, and not a considered analysis. In our view, the report raises questions as to whether its authors were predisposed. The report cherry-picks facts to support its views, and ignores facts that don’t.
AT&T’s response also detailed objections the company had to the FCC staff’s findings, drawing specific attention to what it termed the FCC’s failure to mention the spectrum scarcity issue. According to the company, spectrum scarcity was “the primary reason driving AT&T’s need for this merger.”
The DOJ’s lawsuit challenging the merger on antitrust grounds is ongoing, with a trial scheduled in the District of Columbia district court for February, 2012.