What Went Wrong For AT&T
What Went Wrong For AT&T
What Went Wrong For AT&T

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    AT&T hasn’t yet formally
    surrendered in its campaign to pay $39 billion for T-Mobile, and may
    not for a while. Its top officials are still making provocative,
    pugnacious pronouncements, whinging about its unfair treatment at the
    hands of regulators, while repeating arguments that have all but been
    discredited and dispensing other irrelevancies.

    It’s obvious to most observers that
    AT&T’s attempt to take over T-Mobile is all but dead. The
    post-mortems are starting and the question being asked is: what went
    wrong for AT&T?

    There is a two-part answer: 1. nothing
    2. everything.

    Nothing (from AT&T’s point of view)

     In trying to push through the takeover,
    AT&T did almost everything right, up until the end. They called
    the right plays, had the right personnel on the field and executed
    the game plan.

    When trying to figure out whether to
    pursue the T-Mobile takeover, AT&T probably took a look at the
    regulatory and political landscape at the beginning of the year, AT&T
    had every reason to be optimistic that it could carry the day.

    Even if there were some gung-ho
    staffers within the Federal Communications Commission (FCC) and at
    the Antitrust Division of the Justice Department (DoJ) who would
    oppose the takeover at some point, at the time the deal was being put
    together, AT&T was on a hot streak. It had the run of the FCC.
    Through use of the company’s vast grass-roots network and political
    muscle, AT&T had beaten down FCC Chairman Julius Genachowski any
    number of times, most prominently on his efforts to set new rules for
    an Open Internet.

    In its first big test, the Antitrust
    Division allowed the Live Nation merger with Ticketmaster in January,
    2010 after a year of consideration – albeit with some conditions.
    The Division had done nothing up until that time to show anyone that
    it would do anything differently from what the Division had done
    during the Bush years.

    Both agencies, the FCC and DoJ, allowed
    (with conditions) Comcast to buy up NBC-Universal, obliterating the
    barrier between those companies that own the networks and those who
    own the programming. Sure, Comcast also owned some content, but
    nothing like what NBC-U had in its portfolio of movie studio, TV
    network, production facilities and cable channels.

    And so AT&T proceeded on the
    by-the-book approach that has served it so well. They have spent
    more than $12 million lobbying Congress through September. They
    recruited an all-star team of outside lobbyists including former
    senators and Representatives and ex-Congressional staffers from both
    parties and others with close ties to key politicos.

    They trotted out their paid-for
    legislators to sign letters endorsing the takeover. AT&T worked
    the states, getting state legislators and governors to support the
    takeover, spending who knows how much money because that isn’t
    uniformly reported. They got all of the trade groups and suppliers
    in their business ecosphere to chip in support.

    The spent more than $40 million on
    advertising, most of that going to TV. They paid untold thousands
    more to economists, PR firms, pollsters and the like. And they
    leveraged some of the $148 million they give to charities through the
    AT&T foundation headed by their chief lobbyist, Jim
    Cicconi otherwise known as AT&T Senior Executive Vice President
    of External & Legislative Affairs, to get letters of
    support for a deal that many of those sending in letters never heard
    of. Even the Louisiana Ballooning Foundation got its hot air into
    the act.

    It was (and remains) an impressive show
    of force, run to perfection, and usually it wins every time. But not
    this time. The game changed.

    Everything (As many others see it)

    One problem for AT&T is that this
    deal was like trying to play football in a swimming pool. It doesn’t
    matter what plays you call, or what players you have. It’s just
    not going to work as well as being on a field. This takeover was
    just too blatantly anticompetitive and the supporting reasoning and
    facts were just too thin for the normal set of plays to work
    correctly, no matter how well executed. AT&T wanted to take out
    one of its three national wireless competitors, a company which had
    33 million customers and employed about 40,000 people. It was that
    simple and inescapable fact at the heart of the matter that made it
    so difficult for policymakers to swallow.

    The other problem is that the Antitrust
    Division was starting to feel more bold, going to court to block more
    deals. And Genachowski was being pushed to put on his man pants both
    legs at a time.

    This deal would have been a stretch
    even under a friendly Republican administration (although a very
    friendly Administration might have held its nose and allowed it to go

    All the fuss and bother of letters
    signed by bought-off members of Congress and all of the saturation
    ads with cute kids and fireflies weren’t enough once those
    insulated from all of the fuss and bother got down to looking at the
    facts as presented publicly and presented privately by AT&T.

    It wasn’t a pretty picture when the
    Justice Department on Aug. 31 took the AT&T takeover to court to
    block the transaction. Deputy Attorney General James Cole said at
    the time, “The combination of AT&T and T-Mobile would result in
    tens of millions of consumers all across the United States facing
    higher prices, fewer choices and lower quality products for mobile
    wireless services.” The DoJ said this after months of talks with
    AT&T and others, and after intensive study.

    The reasons were pretty simple as set
    out in the first complaint. T-Mobile was an innovative and low-cost
    competitor in the national cellular market, and consumers would
    suffer if it went away. The smaller, regional carriers don’t have
    the spectrum or technology to compete on a national basis.

    AT&T, of course, which has it in
    its DNA
    never to give up, said, “fine, we’ll see you in court,”
    and proceeded to work over the FCC. Both agencies have to approve
    the transaction. DoJ looks strictly at antitrust law; the FCC uses
    the broader “public interest” standard in the Communications Act.
    The FCC staff was also evaluating the AT&T application in depth.
    A transaction team had been assembled; outsider experts were brought
    in. AT&T was given multiple chances to correct or resubmit
    economic models or to submit data to support their fanciful theories
    about how the merger would create jobs.

    The FCC staff, as we now know, after
    exhaustive evaluation of public and private documents, basically took
    AT&T’s case apart and left it in pieces on the floor. No
    King’s horses or King’s men for this rotten egg. The staff
    dismissed every claim and in excruciating detail in terms of the
    economic models (which AT&T submitted twice) and engineering
    models. The staff found that while AT&T was saying publicly that
    the takeover would lower prices, the models found prices would go up.
    There were really dubious assumptions about how the wireless market
    works, like AT&T saying that if one firm raised its prices, then
    40 percent of its customers would drop cellular service entirely.

    The FCC staff looked at the supposed
    efficiencies that would result from the deal, whether in terms of
    reuse of spectrum or reuse of employees and found AT&T’s case
    in both aspects. They found, as the DoJ did, that T-Mobile
    is a genuine, spunky competitor to which AT&T responded. They
    found severe market concentration in 99 of the top 100 markets after
    the takeover. The found that AT&T’s claims of job creation were
    just so much smoke and mirrors. There was nothing in this deal that
    passed muster.

    And yet AT&T protested that it
    didn’t get a fair hearing. If AT&T wanted a hearing, it didn’t
    have to withdraw its application for the transaction. AT&T did
    that and was quite vociferous about its right to do so. It could
    have fought each point in the 100+ page report issue by issue for
    years in a war of attrition.

    AT&T pulled its application for the
    takeover in an attempt to make sure the staff report would never be
    made public. When the report did come out, AT&T attacked the
    Commission, saying it wasn’t proper to be released and tried out
    the same, old, discredited arguments both the DoJ and FCC had found

    Through the whole process, AT&T has
    acted as if it was running the show – a reasonable assumption most
    of the time. AT&T officials said they were miffed that DoJ
    hadn’t tipped them ahead of time the Antitrust Division was going
    to court to block the deal. They were equally miffed that FCC hadn’t
    told them ahead of time that the staff report was going to be
    released and that they didn’t have a chance to rebut it.

    The FCC gave AT&T more than its
    fair share of chances to make the case for the takeover, stopping the
    clock and allowing the company to resubmit models and data the FCC
    thought were insufficient, even though the rules nominally require
    that the final plan be submitted at the start of the process.

    For AT&T to complain that it didn’t
    receive “careful, considered, and fair analysis” from the
    FCC is simply absurd. AT&T made 208 filings at the Commission,
    49 of which were totally confidential. They submitted about 7,259
    pages (not including confidential filings). The Commission staff
    read through all of that, and more. Yet AT&T still complains it
    didn’t get a “fair hearing and objective treatment.” More on
    the substance of their complaints later.

    Every couple of
    days, there is a story being floated about a new resolution of the
    failed takeover – AT&T would sell spectrum to smaller
    companies. AT&T would do a joint venture with T-Mobile parent
    Deutsche Telekom. AT&T would allow T-Mobile to continue to exist
    using AT&T spectrum. None of those make any sense and none would
    solve the problems of hurting consumers, rising prices and lessening

    As a result of the staff report, AT&T
    is throwing out the absurd claim that the it is not the job of the
    FCC to protect consumers, that the agency is only supposed to settle
    disputes among companies and keep companies from harming one another.

    This is how the Communications Act
    starts. The law is enacted “For the purpose of regulating
    interstate and foreign commerce in communication by wire and radio so
    as to make available, so far as possible, to all the people of the
    United States, without discrimination on the basis of race, color,
    religion, national origin, or sex, a rapid, efficient, Nation-wide,
    and world-wide wire and radio communication service with adequate
    facilities at reasonable charges…” That’s the public interest.
    That’s consumer protection.

    AT&T is just embarrassing itself
    now. It’s a very sad and very undignified situation. Surely some
    of the company’s biggest shareholders or Board members should be
    questioning management’s strategy in getting into the deal in the
    first place and its tactics since then. Recent events are doing
    nothing to bolster the company’s already battered reputation and
    may even be doing some harm.