FCC releases study arguing against AT&T's acquisition of T-Mobile

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The FCC agreed to allow AT&T (NYSE:T) to pull its application for its proposed acquisition of T-Mobile USA and said the carrier could re-file its application at a later time, an action that represents a small bright spot in an otherwise troubled landscape for AT&T's efforts to purchase T-Mobile. However, the commission also released a study that essentially argues against the merger and disputes many of AT&T's initial arguments in support of the transaction.

AT&T and T-Mobile owner Deutsche Telekom announced on Thanksgiving they would withdraw their application for the transaction at the FCC in order to focus on the Department of Justice's lawsuit against the deal. The companies pulled their application after the FCC said it was circulating a draft order that would send the T-Mobile transaction for an administrative hearing. AT&T's decision to pull its application from the FCC likely was in part intended to prevent the FCC from releasing its study on the transaction; the document is an analysis by FCC staff on the merits of the transaction, but was not approved by the agency's five commissioners.

AT&T argued the FCC should not release the study because it would be "irrelevant and potentially prejudicial." However, the FCC said its study is relevant and useful. FCC Chairman Julius Genachowski defended the commission's review of the proposed deal. "Competition is the engine of our free market economy and a cornerstone of the FCC's mandate," he said in a statement.  "Our review of this merger has had a clear focus: fostering a competitive market that drives innovation, promotes investment, encourages job creation, and protects consumers. These goals will remain the focus if any future merger application is filed."

The FCC's 109-page study of the merger of AT&T and T-Mobile found that it would harm competition in the wireless market and result in fewer jobs in the industry--countering arguments AT&T made in March in support of the transaction.

"This report is not an order of the FCC and has never been voted on," wrote Jim Cicconi, AT&T's senior executive vice president of external and legislative affairs, in a blog post. "It is simply a staff draft that raises questions of fact that were to be addressed in an administrative hearing, a hearing which will not now take place. It has no force or effect under law, which raises questions as to why the FCC would choose to release it. The draft report has also not been made available to AT&T prior to today, so we have had no opportunity to address or rebut its claims, which makes its release all the more improper."

AT&T and Deutsche Telekom are now taking their case to the Department of Justice, which has sued to block the deal. That trial is set to start Feb. 13 and opponents of the deal , especially public interest groups Media Access Project and Public Knowledge, had sought to have the FCC release the staff report so that it could bolster the government's case against the deal. AT&T has said it hopes to re-file its acquisition application with the FCC after it obtains approval from the Justice Department.

Analysts have said there is now a 10 percent chance that AT&T will be able to consummate its merger with T-Mobile. Indeed, AT&T announced it will take a pretax accounting charge of $4 billion ($3 billion in cash and $1 billion in spectrum) in the fourth quarter "to reflect the potential break-up fees due Deutsche Telekom in the event the transaction does not receive regulatory approval." AT&T inked a $6 billion breakup fee with Deutsche Telekom.

Interestingly, though the FCC argued against the merger of AT&T and T-Mobile, the agency is circulating a draft order to approve AT&T's proposed purchase of Qualcomm's (NASDAQ:QCOM) 700 MHz licenses.

For more:
- see this FCC study (PDF)
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this The Verge article

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