FCC officials said today that Chairman Julius Genachowski plans to refer AT&T’s merger with T-Mobile USA to an administrative law judge after the agency was unable to approve the deal on the grounds it would diminish competition and lead to “massive” job losses.
“The record clearly shows that — in no uncertain terms — this merger would result in a massive loss of U.S. jobs and investment,” a senior agency official said.
The decision is a major blow to AT&T, which is already facing an antitrust suit from the Department of Justice over the $39 billion transaction.
Genachowski is currently circulating a draft order to other commissioners which, if approved, could put a hold on the transaction for several months. The hearing with the FCC administrative law judge won’t begin until after the conclusion of the DOJ trial, which is set to begin in February.
The judge will hold a trial-type hearing to give AT&T another chance to prove the merits of the deal before rendering an initial decision, which will be reviewed by the full commission. Both supporters and opponents of the deal will be allowed to testify and present evidence. The proceeding is expected to take as long as a normal trial and is likely to drag on for months.
The FCC does not have the power to directly block transactions – it can only approve them as proposed, approve them with conditions or designate them for a hearing.
The FCC’s move leaves AT&T with few places to turn. The operator could continue its fight to get the merger approved or back away from the transaction, a decision that could cost it billions of dollars in termination fees.
“At this time, we are reviewing all options,” AT&T spokesman Larry Solomon said in a statement, calling the FCC’s action “disappointing.”
AT&T executives have repeatedly vowed to continue the company’s legal efforts to close the acquisition.
The last time the FCC referred a merger of this size to an administrative law judge was during the 2002 merger of Echostar and DirecTV. The companies eventually withdrew their applications for the deal.
The agency made its decision after finding that the merger would have a major impact on competition, leading to an unprecedented level of concentration in the wireless market. If approved, the merger would have left AT&T and Verizon Wireless with a near-duopoly hold on the industry and exceeded a key market concentration index in all of the country’s top 100 markets except for Omaha, Neb., where T-Mobile does not offer service.
The agency also found that some of AT&T’s claimed benefits of the deal were not supported in the record. Specifically, the FCC disagreed with AT&T’s claims that the merger would result in a significant expansion in its LTE deployment or an increase in jobs.
AT&T had pledged to expand its LTE network to 55 million people in rural areas and had also pledged to repatriate call center jobs to the United States. However, the FCC’s own research found that there would be “massive job losses from the cost savings AT&T said it would realize,” an agency official said.
The only bright spot in today’s announcement was word that the agency plans to approve AT&T’s purchase of Qualcomm’s Flo TV spectrum. Genachowski is currently circulating an order to approve the transaction. No details were available on the order, which will include an unnamed set of conditions, and the decision still has to be approved by the other FCC commissioners.
AT&T announced late last year it planned to pay $1.93 billion for a massive swath of 700 MHz spectrum used by the now-defunct mobile television service. The D block and E block airwaves cover 300 million people nationwide in key markets such as New York, Boston, Philadelphia, Los Angeles and San Francisco. The bandwidth will be used to provide supplemental downlink capacity for AT&T’s LTE network, which is currently available in 15 markets.