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AT&T to FCC: Stop Consideration of AT&T/T-Mobile Merger Application

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AT&T continues to face fierce opposition in its bid to combine the second and fourth largest wireless telecom providers in the United States. AT&T made the move to merge with T-Mobile in March 2011. The FCC, Department of Justice and the Attorneys General of several states, including New York quickly took notice. The review by the two federal agencies is standard practice for this type of proposed merger, but many industry analysts reported that they took very little time to act.

The latest major setback to AT&T occurred on November 22, when the FCC stated that the acquisition was "contrary to the public interest." AT&T tried to stem the damage by withdrawing their FCC application, hoping to prevent the release of a critical 157 page staff report.

Among many critical comments in the report, the most prevalent was its criticism over the harm the merger would cause to the competitive marketplace. AT&T and T-Mobile "have failed to meet their burden of demonstrating that the competitive harms that would result from the proposed transaction are outweighed by the claimed benefits," one comment claimed. Another was even more direct, "At the same time that AT&T would grow larger, the proposed transaction would simultaneously eliminate T-Mobile, a provider whose disruptive pricing and innovation have benefited wireless consumers throughout the United States."

AT&T agreed to the sale of T-Mobile USA from Deutsche Telekom for $39 billion in cash and stocks. The total number of combined customers for the resulting super telecom provider would have been 130 million people. AT&T claimed the merger would be beneficial because of the expanded coverage for the company's next-generation broadband wireless network to underserved and unserved rural areas.

The release of the staff report infuriated AT&T, who hoped to prevent the fallout from the comments in the report while they worked with the FCC, and considered their next move. Public interest and consumer groups urged the FCC to release the report, and the FCC defended the move, claiming the public has a right to see the report. AT&T thought differently: "(the release of the report) would be unprecedented and have far-reaching effects on the future functioning of the FCC," Richard Wiley, a lawyer for AT&T (also a former FCC chairman), wrote in a letter to the agency before the release of the report.

"We noted that the applications in this docket have been withdrawn and there is no transaction before the FCC for review," Wiley added. "Releasing staff workproduct [sic] concerning a matter no longer before the Commission would be unprecedented. In this case, the workproduct is highly deliberative in nature as it is a draft for consideration by the Commissioners ... This workproduct would in no way constitute official findings of the Commission."

Protesting the release even further, AT&T deemed the action "troubling. This report is not an order of the FCC and has never been voted on," Jim Cicconi, AT&T's senior executive vice president for external and legislative affairs, said in a prepared statement. "The draft report has also not been made available to AT&T prior to today, so we have had no opportunity to address or rebut its claims, which makes its release all the more improper."

Before the release of the report, FCC Chairman Julius Genachowski indicated that the agency's review of the merger deal would require more time by being referred to an administrative hearing. The FCC received more than 200,000 documents and dozens of meetings supporting the view that the merger would damage the competitive market. AT&T expected some opposition, evident by news reported recently that the company set aside $4 billion to cover a portion of the "break-up" fee, shold the deal fail to go through. The $4 billion fee would be paid to Deutsche Telekom in the event of a failed offer.

Publicly AT&T is stating that they are focusing on the U.S. Department of Justice antitrust lawsuit, and will refile their application with the FCC should they prevail in that action.

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