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
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
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
wanting 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
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.