FCC Analysis Blasts AT&T, T-Mobile Merger

In another major blow to the pending merger between AT&T and T-Mobile USA, the Federal Communications Commission has released a staff report that concludes the $39 billion deal “raises serious concerns” and “would substantially lessen competition.”

The nation’s top communications regulator released a scathing report that could hurt AT&T in federal court as it battles the U.S. Department of Justice in an antitrust lawsuit over whether its acquisition of T-Mobile USA is anticompetitive. The case is scheduled to go to trial in February.

“While the DOJ, unlike the FCC, carries the legal burden of showing why the deal is anti-competitive under the Clayton Act, the FCC staff report at the very least gives DOJ additional analytical support for overcoming that burden, and could have some influence on Judge Huvelle,” Stifel Nicolaus analyst Christopher King wrote in a research note Wednesday.

Staff at the FCC found that the merger would result in the nation’s top two wireless providers  AT&T and Verizon Wireless  controlling 75 percent of the market, greatly reducing competition and undermining critical goals of the Communications Act, the FCC noted in an order released late Tuesday. The agency’s staff also disputed AT&T’s claims that the merger would create jobs and was critical in order to build out its fourth-generation LTE wireless network to 97 percent of Americans.

Applying an index that is used to gauge market concentration  the Herfindahl-Hirschman Index  the staff found that “99 of the 100 largest local wireless markets … would exceed the level at which the Commission becomes concerned about anticompetitive effects,” the FCC noted.

“The staff’s findings suggest the applications appear to substantially lessen competition in ways that no conditions would appear to remedy,” FCC Commissioner Mignon Clyburn said in a statement.

The FCC also granted the request of AT&T and Deutsche Telekom, T-Mobile’s parent, to withdraw their applications for approval of the deal after AT&T learned that the agency would seek an administrative hearing.

AT&T and Deutsche Telekom yesterday asked the agency to deny a request by Public Knowledge and the Media Access Project to release the report.

“In this case, there is no legitimate basis for the release of this workproduct,” Richard E. Wiley, outside counsel for AT&T and Deutsche Telekom, wrote in a letter to the FCC. “PK/MAP merely seek to prejudice the pending litigation with DOJ.”

The FCC disagreed, articulating a number of reasons for releasing the report. Such disclosure “furthers transparency,” the FCC said, and the staff’s analysis “remains highly relevant” since AT&T and Deutsche Telekom still intend to pursue the merger, including coming back to the FCC later on for approval. Withholding the report also would be unfair to the businesses, public interest organizations and citizens who have participated in the merger proceeding, said the agency, which noted the proposed merger between the nation’s second- and fourth-largest wireless providers drew 50 applications to deny the deal and thousands of public comments.

AT&T’s Jim Cicconi  senior executive vice president – external and legislative affairs  shot back in a blog late Tuesday that the report “has no force or effect under law” and was not made available to the company before it was released, depriving AT&T of the opportunity to rebut the claims.

Bellevue, Wash.-based T-Mobile USA, which served 33.7 million customers at the end of the third quarter, has been struggling with subscriber losses, yet the company is known as a lower-cost alternative to its bigger peers like AT&T and Verizon Wireless.

In a statement, FCC Commissioner Michael Copps raised concern that the merger would leave low-income Americans without a viable wireless alternative.

“T-Mobile has built a business model targeting budget-conscience consumers. With lower-income consumers increasingly thinking of mobile as their only broadband service, and with no guarantee the new entity will continue to serve the population, many consumers may find themselves priced right out of broadband,” Copps said. “That is not a direction the country can afford to go.”

The actual staff report was not available around noon ET Wednesday on the FCC’s website; the agency said to check back later.

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