Why AT&T Can’t Just Cut A Deal With Leap or MetroPCS and Call It A Day

The latest AT&T ploy to convince the gullible that it’s planned acquisition of T-Mobile remains TOTALLY AND COMPLETELY ON TRACK and that everyone should just ignore the minor little tiff it has with the Department of Justice (and 7 State Attorneys General) involves pretending to pick potential rivals as recipients of any divestiture agreement. I say “pretending” because AT&T has either conveniently forgotten that such transfers need FCC approval or has reassured everyone involved that the FCC will rubberrstamp any settment AT&T negotiates. My personal theory is that AT&T’s “outreach” to supposed potential buyers is solely for theatrical effect so it can claim to be in “negotiations” with “interested parties” at the upcoming status conference.

In any case, AT&T’s claims to be negotiating such settlements should be greeted with a healthy dose of skepticism, and not merely because the sources for this story are “two people with direct knowledge of the situation” who refuse to be identified. 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.

I explain in greater detail below . . . .

Lets pretend for a moment there actually is some combination of divestitures to specific companies that is acceptable to AT&T as still giving it sufficient benefit from the transaction that also creates a strong enough new competitor that DoJ is satisfied. I’m highly skeptical of this, especially in light of the DoJ complaint noting that the merger leads to unhealthy levels of concentration in 97 of the top 100 markets. But we’ll pretend that a deal could be reached to demonstrate why procedurally such as result is highly unlikely to solve AT&T’s problems.

Those used to divestitures as a remedy in wireless cases may wonder what I’m talking about. The difference between what usually happens and what AT&T is pretending to do here is that divestitures of wireless licenses/systems generally don’t have specific buyers. For example, when AT&T agreed to divest systems as part of its acquisition of Centenniel, the FCC required that it transfer the systems to a third party trustee, pending acceptance by the FCC of an application to transfer the systems to someone else. True, AT&T already had a side-deal with Verizon to transfer the systems to Verizon. But from the FCC’s (and DoJ’s) perspective, approval of the Centenniel deal depended on transferring the systems to anyone else, not to Verizon specifically, and could therefore proceed without resolving the transfer of the divested systems (which were resolved in a separate proceeding and Order). Had the FCC rejected the transfer to Verizon, AT&T could still have satisfied the merger conditions by transfering the systems in question to someone else.

In this case, settlement would depend not just on AT&T divesting itself of systems, but on divesting them to very specific entities. That isn’t something DoJ can agree to on its own. 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. Even in the best of circumstances for AT&T, the process would take months and would undoubtedly require new conditions, which would require reopening the DoJ proposed consent decree.

To give a sense of how long this can take, the transfer of 6 AT&T systems to Verizon to satisfy the conditions in the Centenniel acquisition took about 11 months. Whatver Rube Goldberg-esque arrangement AT&T would put together would certainly take far longer — assuming it held together during the review process. Meanwhile, we pass September 2012 and DT collects its break up fee.

Those who refuse to believe that AT&T might lose one will no doubt insist that these are just fiddly little legal details and, when AT&T cuts a deal any day now, these “technicalities” will magically melt away before AT&T’s awesome lobbying/FCC manipulating machine.  Those seriously trying to understand the process, and just how unlikely a settlement really is, may wish to consider how wrong the AT&T cheerleading squad has proven so far.

Stay tuned . . .

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