Can AT&T Really Walk Away From The FCC While Keeping The T-Mobile Deal Alive?
Can AT&T Really Walk Away From The FCC While Keeping The T-Mobile Deal Alive?
Can AT&T Really Walk Away From The FCC While Keeping The T-Mobile Deal Alive?

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    We remember the surrender of General Robert E. Lee
    at the Battle of Appomattox Courthouse as the end of the Civil War, despite the
    fact that Confederate forces remained in the field for several weeks thereafter.
    The announcement by AT&T and Deutsche Telekom (DT) that they have told the Federal Communications Commission (FCC) to dismiss their
    application to transfer T-Mo to AT&T “without prejudice” is rather similar.
    To quote Craig Moffett: “the fat lady hasn’t started singing yet, but she’s
    holding the mike and the band is about to play.” (We’ll ignore that the fat
    lady is supposed to be singing opera.) This is reinforced by AT&T informing
    the SEC for the first time that it expects to pay DT the break up fee, which
    it values at $4bn ($3 bn cash, $1 bn spectrum) rather than the $6 bn announced
    last March (the spectrum rights appear to have been devalued $2 bn).

    The letter filed by AT&T assumes that the FCC will
    allow them to withdraw. It states: 

    “AT&T Inc. and Deutsche
    Telekom AG hereby withdraw, effective immediately, all of the pending
    applications in this docket, as listed in the Public Notice released by the
    Commission on April 28, 2011, and, in accordance with the Rules, the
    applications are to be dismissed without prejudice.”


    AT&T has since said publicly, albeit without citing any authority, that they may withdraw as a matter of right and that the FCC not only does not need to approve its request, it has no power to stop it from withdrawing the application and thus preventing the FCC from actually voting on the Hearing Designation Order.

    The problem for AT&T is that,
    contrary to what it continues to believe, it does not actually control what the
    FCC does. Yeah, I know, that comes as a big surprise to folks. And for the
    second time within a space of a month, I am giving a big yasher koach to Julius Genachowski for taking on something big. I
    outline the options below, along with how this might impact the DoJ antitrust

    What Does It Mean To Dismiss The Applications Without Prejudice?

    Technically, AT&T maintains it is not giving up but withdrawing its application “without prejudice.” This would allow DT and
    AT&T to come back and file the exact same application all over again. One
    may rationally ask: “Dude, you just lost. What the heck makes you think you can
    just come back later?” As AT&T and DT explain in their statement, they
    intend to “focus on obtaining antitrust clearance from the Department of
    Justice.” Since if AT&T and DT can clearly afford to do both at the same
    time, as they have been doing for the last several months while simultaneously
    spending ridiculous amounts of money on advertising and lobbying, this
    explanation does not explain anything. So let us run through a couple of real

    AT&T at Face Value: Why Withdraw?

    First, let us take the company at its word and
    assume they intend to continue the fight against DoJ in court. By all accounts,
    the FCC’s hearing designation order (HDO) is devastating to AT&T’s case. It
    rejects AT&T’s evidence about how the merger creates jobs, finding instead
    that the merger will cost lots of jobs. It will also reduce overall investment,
    raise prices to consumers, and is not necessary to get rural broadband

    This is, of course, what DoJ said in its complaint
    and what merger opponents have said all along. But when the Federal
    Communications Commission, the agency delegated by Congress to oversee the
    telecommunications industry, makes a pronouncement like this with a vote of the
    full Commission, that actually means something. Arguably, under something
    called the “Chevron Doctrine,”
    courts must defer to such findings as binding unless “clearly erroneous,
    arbitrary or capricious.” But even if the court in the antitrust case does not
    regard these findings as binding under Chevron,
    since the trial court is operating under separate authority (Clayton Act not
    Communications Act) and is quite capable of making its own finding of fact,
    Judge Huvelle will still look at the FCC’s determination and weigh them accordingly.
    Instead of an argument between DoJ and AT&T over market definition, jobs,
    and everything else with DoJ carrying the burden of proof, it effectively
    shifts to “why shouldn’t I believe the FCC? They are the expert agency, why are
    they wrong?”

    By contrast, if the FCC doesn’t issue the HDO, and
    AT&T somehow wins the antitrust case, it can try to resubmit its
    application with a favorable judicial determination on the relevant market
    definitions and with strong political arguments that if AT&T could beat DoJ
    under antitrust, it ought to get a free pass from the FCC under the public
    interest standard of the Communications Act. True, as I and others keep saying,
    the antitrust standard and the Communications Act standard are different, with
    the Communications Act “public interest” standard including antitrust, but
    going beyond antitrust, but a miracle win in district court would give AT&T
    ammunition to take exactly the same application and try to ram it through the FCC.
    Similarly, if AT&T could somehow force DoJ to settle (despite [every sign
    even before this that DoJ did not have any interest in settling]), it could reapply
    and try to get the settlement approved by the FCC.

    In other words, AT&T is saying to the FCC: “Please
    let us slink off in the hope that we can either force DoJ to settle or
    miraculously win and then come back and use these changed facts to beat the
    snot out of you.”

    The FCC Have To Grant The Request To Dismiss Without Prejudice?

    Despite AT&T’s insistence to the contrary, I
    do not believe the FCC is required by law to grant AT&T’s request to
    withdraw without prejudice. While the FCC (and courts of law) are usually
    pretty easy about this sort of thing if all parties to a matter are happy with
    the matter disappearing, you generally don’t get to sneak off at the end when
    it becomes clear you are about to lose.  Courts
    generally do not allow a plaintiff to withdraw “without prejudice” at the end
    of a trial to avoid losing, and the FCC is under no obligation to play dumb and
    say: “Gawrsh, I guess if AT&T just goes away without prejudice then
    everything will be okey-dokey again here in Portals.”

    AT&T has not cited any actual authority, but I
    will note that even if the FCC does have rules on point, the FCC has a general
    clause that allows it to waive any of its procedural rules “for good cause
    shown, in whole or in part, at any time by the Commission.” (47 C.F.R. 1.3) I would include “not allowing parties to
    weasel out of proceedings at the last minute so they can try to game the system
    after imposing millions of dollars of cost on merger opponents, intending to
    come back and impose costs all over again as soon as politically possible” as
    good cause. Finally, if all else fails, under Section 403 of the Act, the
    Commission could vote the Hearing Designation Order as a declaratory ruling on
    what will happen if AT&T/T-Mobile refiles.

    So I don’t think the FCC is required to flush the
    HDO down the toilet and let AT&T have a free go at a miracle play on the
    antitrust side. But lets pretend that the FCC decides to play it safe and
    dismisses the application without prejudice just to see where this takes us.

    Happens If The FCC Dismisses Without Prejudice?

    In theory, AT&T and DT can pursue its case at
    the district court. But the district court is under no obligation to allow the
    case to go forward, and plenty of reason not to go forward. As a start, federal
    courts do not issue “advisory opinions.” It requires a live “case or
    controversy” for parties to have what is called “standing.” Without standing,
    the case cannot go forward. Specifically, one of the requirements for standing
    is that a decree by the court will actually have some impact on the parties
    before it.

    Arguably, AT&T and DT no longer have standing
    because they cannot complete their merger without a transfer of licenses. The
    court might say: “Look, even if I issue a decree in your favor, it doesn’t
    matter, because it doesn’t help. So I’m dismissing the case, come back when you
    have a live case or controversy.” AT&T has a reasonable counter-argument,
    however, because as I keep saying, the antitrust laws and the Communications
    Act are different. AT&T can say: “But Your Honor, we do have a live case or
    controversy. The FCC has not said it won’t complete the license transfer,
    and nothing in the antitrust laws requires us to apply for both at the same
    time. So we have a live ‘case or controversy’ since your decision is a
    necessary step and we might still get FCC approval afterward.”

    AT&T makes it past the standing hurdle, it then will need to explain why
    the court should not hold the case in abeyance pending AT&T resubmitting
    its application. Here, DoJ (or the court on its own motion) would say: “It may
    be OK legally for the trial to proceed, but it makes absolutely no sense
    because to do so because it may be a total waste of time given that the FCC was
    poised to refer the matter to a hearing, which strongly indicates that it would
    ultimately find the license transfer is not in the public interest. So why
    should I waste my time on an incredibly long, complicated case when you don’t
    even have an application in front of the FCC at this point? You may end up
    filing a totally different application if you negotiate some kind of settlement,
    which would also make moving forward here a waste of time.  Besides, I’m not stupid. It’s obvious you are
    trying to game the system by avoiding the FCC decision, hoping to win here, then
    using that to browbeat the FCC into submission. I am not happy with people
    playing games in my court. So we will just keep this case on ice until you
    refile your application with the FCC and we see what happens over there.”

    standing, where if the court finds no standing the court must dismiss the case,
    holding a case in abeyance is a matter of discretion. Judge Huvelle could
    always say: “Sure, what the heck, we’re all scheduled for trial and stuff. I’m
    operating under a different statute and the FCC is free to do whatever it wants
    even if AT&T wins here. So lets go ahead and let the games begin!” But
    abeyance is pretty common in a situation where it looks like a decision by an
    administrative agency will render a decision by the court moot. For example,
    the D.C. Circuit routinely holds petitions for review of FCC rules in abeyance
    when parties file Petitions for Reconsideration with the FCC if there is
    substantial overlap between the Petition for Review before the court and the
    Petition for Recon before the FCC.  The
    principle is usually referred to “judicial economy,” i.e., why should the court
    do a whole bunch of work when it might end up being a huge waste of time.

    addition, in this case, it is pretty obvious what AT&T is trying to do.
    Judges generally don’t like it when people play cutsie games to gain advantage,
    and Judge Huvelle has shown little patience for it. Holding the case in
    abeyance until AT&T and DT refile would require them to refile and take
    their lumps at the FCC, or give up. So while the withdrawal of the applications
    may not result in the antitrust case sitting on ice, that’s the way I would

    But Maybe Held In Abeyance Is
    What AT&T Really Wants.

    how incredibly unlikely AT&T is to win at this point, even if it gets to
    withdraw without prejudice, why is AT&T drawing this out? Do they really
    think they can win in district court? Why not just call it quits, or vow to
    fight it out before the FCC’s administrative law judge?

    I am not
    privy to AT&T’s inner workings, so all of this is pure guess work on my part.
    (Or, to quote a former Republican front runner, “I don’t have the facts to
    back this up, but . . .”) But I think a number of things are going on here.
    First, AT&T was, once again, caught by surprise on the timing. Genachowski,
    to his credit, played this like a total master. (And who ever thought I would
    write that sentence?) He kept his cards close, counting on his reputation for
    avoiding political conflict with powerful entities like AT&T, then sprang
    it on them when Congress was out of town and AT&T could not pull together
    powerful political pushback. The announcement that the Chairman would do this
    on circulation, rather than wait 3 weeks for the December Public Meeting¸
    further limited AT&T’s options.

    by surprise with very limited options, AT&T had two choices: try to tough
    it out and lobby like Hell to prevent a vote, or try to pull the applications
    to avoid an HDO. As between these two bad choices, AT&T probably made the
    right calculus. It seems extremely unlikely that AT&T could prevent a vote
    for the HDO. Neither Democrat is likely to undercut both the Chairman and the
    Department of Justice, even if he or she wanted to vote against it. Nor is it
    certain the McDowell would vote against a designation for hearing. As I have
    observed before, McDowell is not a corporate shill so much as a true believer
    in the Gods of the Marketplace
    . This is precisely the case where McDowell
    might say: “Well, this is definitely the thing to do, refer to a hearing rather
    than leverage our authority to extort concessions. There are real questions
    about market power here, and they ought to be resolved by a hearing as required
    by law.” Heck, this kind of once-in-a-blue-moon vote is precisely the sort of
    thing that burnishes credentials as a genuine believer in the free market
    rather than simply pro-big business.

    attempted withdrawal of the application is really the only option to avoid an
    HDO. The fact that it may mean the antitrust case gets held in abeyance may, in
    fact, be a plus for AT&T. At this point, AT&T is now conceding to the
    Securities and Exchange Commission that it will probably have to pay the break
    up fee
    . But AT&T can still hope to renegotiate the break up fee with DT by
    stretching out the proceeding. As I’ve said several times before, if DT knows
    it can’t get the deal done, it will want to unwind as quickly as possible so it
    can maximize the value of T-Mo to another buyer, or as a stand alone initial public
    offering (IPO). While one Wall St. analyst recently valued such an IPO at $28 billion,
    that will decline if T-Mobile remains shackled to the deal and continues to
    experience churn as a result.

    AT&T may be content to have the case in abeyance before the district court.
    At this point, keeping the case open is the only leverage it has to renegotiate
    the break up fee. If the case is in abeyance, AT&T can threaten to leave it
    that way until the break up fee comes due in September 2012 unless DT agrees to
    renegotiate the fee downward.

    Bottom Line: It’s Over, the Only
    Question Is When

    As I
    noted above, while we remember Lee’s surrender at Appomattox as the end of the
    Civil War, the War continued for several months. It took time to negotiate the
    surrender of more than 115,000 Confederate soldiers still in the field. So too
    with AT&T’s efforts to acquire T-Mobile. Technically, it is not over. AT&T
    and DT have not given up, and considerable last minute maneuvering still
    remains. Finally, given AT&T’s vast resources and determination, the chance
    remains that they may pull some last minute rabbit out of the hat to revive the

    But if I
    have to bet, I think folks in the future will point to Chairman Genachowski’s
    decision to circulate a proposed HDO, and AT&T’s effort to withdraw its
    application, as the key moment when AT&T admitted defeat in its effort to
    acquire T-Mobile.