FCC Restarts 180 Day Clock on AT&T/ T-Mobile Merger- Cutting through all the Hype!

Tick Tock, Tick Tock

Towering

(cc) photo credit: Rachel Strohm

The FCC is restarting the informal clock on the AT&T/ T-Mobile Merger effective today.  “As such, today, August 26, 2011, is Day 83 under the time clock,”  Rich Kaplan, Head of FCCs Wireless Telecom Bureau, wrote on the FCCs web site:  http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db0826/DOC-309294A1.pdf.

The FCC 180 day clock is officially known as “Informal Timeline for Consideration of Applications for Transfers or Assignments of Licenses or Authorizations Relating to Complex Mergers.”  It  is intended to identify generally what tasks the FCC  needs to accomplish in order to complete its review in cases involving complex or difficult issues, the normal order in which these tasks can be most efficiently performed, and the time normally needed to complete them.   The timeline represents the Commission’s goal of completing action on assignment and transfer of control applications (i.e., granting, designating for hearing, or denying) within 180 days of public notice. Routine applications should be decided well within the 180-day mark. More complex applications may take longer.

It is the Commission’s policy to decide all applications, regardless of whether they are highlighted on the web page, as expeditiously as possible consistent with the Commission’s regulatory responsibilities. Although the Commission will endeavor to meet its 180-day goal in all cases, several factors could cause the Commission’s review of a particular application to exceed 180 days. Delay in action beyond the 180-day goal in a particular case is not indicative of how the Commission ultimately will resolve an application.  The timeline is intended to promote transparency and predictability in the Commission’s process.

The FCC had stopped the 180 day countdown on July 21st, saying that AT&T had indicated that it had revised its models to support the merger’s approval.  But today, the FCCs Rick Kaplan writes that the Commission has “received AT&T’s answers to our specific questions as well as AT&T’s confirmation that it believes our record is complete with respect to its economic models (for LTE deployment).  Our understanding is that, unless specifically prompted by a request from the Commission or the Department of Justice, AT&T will not be submitting any further revisions to the models.”  Hence, the FCC has restarted the 180 day clock from day 83, which means there are 97 days remaining before the FCCs final decision on the merger/acquisition.

“We are pleased that the FCC has restarted the clock, and we are confident that the Commission will move expeditiously to complete its review of our merger with T-Mobile,” Bob Quinn, AT&T’s senior vice president for federal regulatory issues, said in a statement.

What the AT&T/T-Mobile Deal is Really About

The central issue in the proposed $39 billion acquisition is whether the combined company would benefit consumers enough to overcome concerns that the deal could limit wireless competition.  AT&T,  the nation’s second-largest wireless carrier after Verizon Wireless (VZW), announced a deal to acquire fourth-largest carrier, T-Mobile this past March.

AT&T has claimed that it’s goal in acquiring T-Mobile was to expand it’s 4G-LTE network to cover rural areas in the U.S., which otherwise could not be economically justified.  In particular, they say that with T-Mobile’s real estate and cell towers, the company can extend its LTE footprint from 80% to 97% of the U.S. population.   “The rural wireless buildout is the biggest political benefit AT&T is proposing from this merger,” said Paul Gallant, a telecom analyst at MF Global Holdings Ltd.’s Washington Research Group.  Making high-speed Internet service to all Americans (especially in unserved/ under-served rural areas) has been  a top priority of FCC Chairman Julius Genachowski.  Extending wireless broadband to rural areas  would enable Americans outside of big cities  to experience video downloads, streaming video, and other data-heavy applications and services on their AT&T smartphones, tablets or notebook PCs.

“We look forward to providing the commission with this additional information, which will further confirm that we would not be able to deliver 4G LTE to 55 million more Americans without our merger with T-Mobile,” an AT&T spokeperson said.

However, public interest groups and Sprint have argued that the real reason for the acquisition is to stifle wireless competition, which would give consumers fewer choices (and possibly higher monthly bills).  There seems to be substantial evidence to corroborate their position.

Free Press, an advocacy group working for media reform, last week sent a letter to select members of Congress saying they had been misled earlier this summer “by AT&T’s false claim” that it needed to acquire T-Mobile so it could deliver wireless broadband to 97 percent of the nation’s population.  That letter, references a now redacted August 8th  letter filed by AT&T with the FCC, in which the company said it would require an estimated $3.8 billion in capital expense to expand LTE coverage from 80 percent to 97 percent of the U.S. population, one-tenth the amount needed to acquire T-Mobile.  The redacted AT&T letter originally appeared on the FCC’s web site but was removed at AT&Ts request.  AT&T spokesman, Michael Balmoris, said the redactions were intended to keep its confidential information from public view.

Calling the benefits of the acquisition as described by AT&T “little more than smoke and mirrors,” Free Press’ letter cites the redacted document from AT&T to the FCC as proof that the “new Ma Bell” can deliver 97 percent mobile broadband coverage without the acquisition of T-Mobile and its spectrum. Free Press asked the Congressmen to review the information contained in the document and revise their recommendation of the acquisition to the Department of Justice and the FCC.

In particular, an August 4th teleconference between AT&T’s legal team and FCC staff states that AT&T management initially had rejected additional spending to expand LTE service coverage of the U.S. population from 80 percent to 97 percent.  In January, AT&T executives concluded there was “no viable business case for the proposed  (LTE network) expansion.”    The August 8th redacted letter provides the specific details for that decision: AT&T had considered and rejected plans to expand its LTE network on its own to cover 97% of the U.S. at a cost of $3.8 billion, which was deemed to be prohibitively expensive.  Yet that’s less than a tenth of the cost of the proposed T-Mobile acquisition! 

Continuing, the August 8th letter says that the acquisition of T-Mobile “changes the calculus of LTE deployment” and makes it more acceptable for AT&T to “absorb the increased capital investment and lower returns” resulting from deployment to more than 97 percent of the U.S. population.

And that seems to be the rationale for AT&Ts acquiring T-Mobile —to cover an additional 17% of the U.S. population (from 80% on its own to 97% with T-Mo added) with an LTE network from the combined companies.  It’s interesting to note that neither company has yet to deploy an LTE network, but clearly AT&T wants T-Mobile’s cell towers, spectrum, and equipment to expand its LTE network footprint.

The WSJ has reproduced a copy of AT&Ts redacted August 8th letter:

http://online.wsj.com/article/SB10001424053111904787404576528613428221284.html#ixzz1W9AmV2Xb%3D%26project%3DWSJPDF%26s%3Ddocid%253D110824215152-71ba85dcc09a4eb0bd58085fcfb7e7ea%257Cfile%253Datt_filing%26articleTabs%3Ddocument

Free Press rejects the AT&T claim about justifying the T-Mobile merger based on an expanded LTE footprint.  In its letter to Congress, Free Press states that the acquisition is more about doing away with competition than affordable LTE deployment.  “In spite of all the evidence to the contrary, AT&T continues to assert that its $39 billion purchase of T-Mobile is necessary for the company to bring high-speed mobile broadband service to 97 percent of the country. The numbers don’t add up. It’s clear that AT&T is willing to pay a hefty premium to kill the competition,” the letter said.

An Even More Unusual Twist and Turn by the FCC in this case [Editor’s note: this section added on 8/26]

What’s baffling to us is that FCC council requested additional information related to AT&Ts economic models on August 24th (see: http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db0824/DOC-309258A1.pdf), but  re-started the 180 day clock less than 2 days later without describing the reply they received from AT&T or its attorneys.

In their Aug 24th letter the FCC wrote, “Specifically, we understand that AT&T’s senior management concluded the transaction would improve the likely return on the additional LTE deployment to create a business case for this deployment where one would not exist absent the transaction. At our August meeting, Commission staff requested any documents related to this statement, including any estimates of transaction-related changes in cost, revenue, andlor profitability associated with additional LTE deployment. Although AT&T has stated that it has not quantified the transaction-related changes in the business case for extending its LTE footprint, we ask that you supplement your filing with any documents or analyses explaining why the changes in cost, revenue, and/or profitability are likely to be large enough to change the overall business case for the additional deployment.”

AT&Ts reply to that Aug 24th FCC letter was not publicly disclosed or described in Rick Kaplan’s previously referenced  Aug 26th letter restarting the 180 day clock.

Might that be a lack of FCC transparency or simply potecting highly confidential information provided by AT&T?  And whatever info AT&T did provide on its economic models, its even more incredible that the FCC could evaluate same in only one day (Aug 25th), as the 180 day clock was restarted the morning of Aug 26th!

AT&Ts Santa Cruz Customer Are Not Happy Campers

The San Jose Mercury News writes that AT&Ts T-Mobile acquisition would bring LTE to Santa Cruz County, CA residents.  Santa Cruz County represents topographical challenges because it’s on the Pacific coast and is mountainous.  AT&T claims their antennas have a limited capacity, which results in dropped calls during busy times.   Using T-Mobile’s existing cell towers will help alleviate that problem and provide the basis for LTE deployment in the county, according to the article:

The Merc reports that for some Santa Cruz customers, the promised improvements are too little, too late. They have left AT&T for a competitor.

  • “I have great coverage in Santa Cruz and while driving over (Highway) 17,” said Steven Kozak, who switched to Sprint.
  • “If AT&T acquired T-Mobile, I will be forced to find a new provider,” said Bruce Reiss, who went to T-Mobile after experiencing bad service with AT&T from 2003 to 2007.
  • Santa Cruz resident Stephen Hauskins is among the unhappy AT&T customers.  “Most of my calls get dropped or I can’t even get a connection,” said Hauskins, who lives on Western Drive.  However, he has no problems making calls when he’s at UC Santa Cruz or on the lower Westside.
  • Jerry Granger, an AT&T customer on 36th Avenue in Mid-County, said he deals with dropped calls, missed calls and poor reception.

Conclusion

We leave it to the reader to decide whether AT&Ts buyout of T-Mobile is really intended to extend it’s LTE footprint to rural or sparsely populated areas.  Again, AT&Ts claim is that it will bring LTE from 80% to 97% of the US population.   Public interest groups say that’s a smelly smokescreen and that the real reason for the deal is to knock out Sprint and lower tiered wireless competitiors, leaving only AT&T and VZW as dominant duopolies of the U.S. wireless world.

To contact the  CPUC Public Advisor to support or condemn the AT&T/T-Mobile deal, write to:  www.cpuc.ca.gov/PUC/aboutus/Divisions/CSID/Public+Advisor/

12 comments for “FCC Restarts 180 Day Clock on AT&T/ T-Mobile Merger- Cutting through all the Hype!

  1. August 31, 2011 at 1:29 pm

    From today’s Viodi View –

    Breaking News – Reflecting DOJ’s Lawsuit, FCC Concerned About Competition from AT&T-T-Mobile Merger

    The Department of Justice filed suit to block AT&T’s proposed acquisition of T-Mobile today. In their analysis, Stifel Nicolaus believes that the DOJ is intent on blocking the deal and that this isn’t a negotiating tactic. In a written statement, FCC Chair Genachowski said,

    “By filing suit today, the Department of Justice has concluded that AT&T’s acquisition of T-Mobile would substantially lessen competition in violation of the antitrust laws. Competition is an essential component of the FCC’s statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition….”

    It will be interesting to see what impact the DOJ decision has on the FCC’s approval process that Weissberger wrote extensively about this past week.

    • Alan Weissberger
      September 1, 2011 at 2:32 pm

      Thanks Ken. While Deutsche Telekom will get a few $B if the merger doesn’t go thru, I wonder if the parent company has a back-up plan for T-Mo? A Deutsche Telekom board member revealed on Thursday that the company has not considered any alternative options for T-Mobile USA other than a sale to AT&T, reports Bloomberg.

      “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,” warned deputy attorney general James Cole.

      The DoJ said T-Mobile’s history of aggressive pricing has been a disruptive force in the U.S. mobile market and an important source of competition. Therefore removing this disruptive force would have negative consequences for consumers.

      The DoJ concluded that “AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers.”

      Yet the FCC proceeded with evaluating this merger, seeing nothing wrong, not being transparent, or justifying why they restarted the 180 day clock last Friday morning!

    • Alan Weissberger
      September 4, 2011 at 8:09 am

      9/2/11 WSJ article states that FCC seldom goes against a DoJ decision to block a merger. But they also say not to count out AT&T:

      “It is still conceivable that AT&T will find a way to save the deal, and the Justice Department left the door open for talks. The phone giant rarely loses major battles in Washington and has countless allies here. The company has given generously to lawmakers’ campaigns and funded interest groups. In 2010, it spent $15 million on lobbying, according to the Center for Responsive Politics, and it is on track to surpass that figure this year, with $11.7 million spent so far.”

  2. Anonymous
    August 29, 2011 at 12:36 pm

    GigaOM: AT&T-T-Mo and Transparency (or the lack thereof)

    “The whole incident shows pretty clearly how opaque the FCC’s merger review process is — and even how opaque many aspects of the agency are as it seeks to protect the bodies it regulates from sharing confidential information. We see it here, and it’s also one of the reasons the National Broadband Map efforts were such an expensive boondoggle and why the results were so disappointing. The agencies involved caved on getting broadband providers to detail where they offer service at the address level.”

    Comment by Virtuous: “The FCC is in the pocket of big business. That’s why this takeover won’t be stopped. At one time government may have been transparent, but it no longer is. The powers that be have bypassed open government laws with the assistence of the courts.”

    http://gigaom.com/broadband/what-att-mo-tells-us-about-transparency/

  3. August 28, 2011 at 10:23 pm

    Alan, thanks for adding the section, “An Even More Unusual Twist and Turn by the FCC in this case”. Where is the documentation from AT&T that was referenced in the letter restarting the clock? I couldn’t find it on the FCC web site either.

    Of course, it could be the FCC web site, which, although improved, is still not the most user-friendly site in the world. Having said that, I can’t find another document that could be related that was posted in the FCC Daily Digest a couple months back. I attribute it to the FCC web site, but I am still waiting for a reply from the FCC and as, you point out, shrouds the process.

    • Alan Weissberger
      August 29, 2011 at 5:09 pm

      We heard back from one confidential source who says DoJ Review of this merger will be a certainty!

  4. Anonymous
    August 27, 2011 at 9:40 pm

    Merger of ATT and T-Mobile is a merger of two losers… a big loser and a smaller loser. The merger will result into a loser company.

    Verizon is deploying a better, long term oriented infrastructure in wireless networks and fiber networks. Verizon will continue to take market share away from ATT irrespective of the merger. Verizon will continue to do well with quality conscious customers who will probably pay a bit more since ATT can only compete on price and not quality. As soon as my contract is over I will be switching from ATT and Verizon within 2011.

  5. August 27, 2011 at 12:53 pm

    Skepticism on the deal from the Huffington Post:

    “Complicating matters for AT&T on Wall St, the money people have been starting to get nervous since Bloomberg News reported that industry analysts are losing confidence that the merger will be approved. Snowing regulators is one thing, but separating investors from their money is a much heavier lift, particularly when billions of dollars are involved.

    Last, AT&T has stepped on its own tail, unintentionally disclosing confidential documents that revealed the company could meet its commitments to deploy mobile broadband to 97 percent of the country for just $3.8 billion — one-tenth of the $39 billion it is spending to acquire a competitor in T-Mobile that offers lower-priced services to wireless customers. This is irrefutable evidence that AT&T made a choice to eliminate competition in the market rather than invest in network upgrades. If the promise of rural broadband is the carrot AT&T is offering to win approval from Washington; denying rural Americans mobile broadband service is the stick — supposedly. Remember, with all of AT&T’s merger bluster, Verizon is already planning to offer 4G LTE service to 97% of the country. Surrendering such a large portion of the market to Verizon would be an expensive self-sacrifice, and unlikely given AT&T’s dominant position in the marketplace.

    The army of lawyers and lobbyists AT&T and T-Mobile have assembled to ram this merger through are going to need more than a conference call or two to make this deal happen. They’re going to have to convince two federal agencies, leaders in Congress, at least nine state regulatory agencies, investors and consumers that killing off competitors is somehow good for competition, cutting jobs is somehow good for employment, and refusing to invest in infrastructure is somehow good for investment.

    Their effort is faltering. If the facts get more traction than AT&T’s fantasy, that effort will surely fail.”

    http://www.huffingtonpost.com/joel-kelsey/fcc-att-tmobile-merger_b_936793.html

  6. Anonymous
    August 26, 2011 at 12:09 pm

    Given the command and control DNA in TELCOs, and given the letter’s disclosure, and given the inherent system and business integration issues with a merger, I say: ATT’s reasons for the deal are purely reduction of competition, not cheaper broadband wireless deployment.

  7. Ashok Dutta
    August 26, 2011 at 10:31 am

    Superb article that actually does cut through all the hyperbole and spin talk.

    It seems like AT&T executives have contradicted themselves twice about the viability of the T-Mobile acquisition:

    1. They said in January that there was “no viable business case for the proposed expansion.” So why is there a business case now?

    2. The redacted August 8th letter says AT&T had considered and rejected plans to expand their LTE network on its own to 97% of the U.S. at a cost of $3.8 billion. Therefore, they need to acquire T-Mobile to get from 80% to 97% LTE coverage. But that $3.8B is less than 1/10th the price they will pay for T-Mobile. That’s a huge disconnect.

    I think the FCC should HANG UP on this proposed merger!
    Surprised others haven’t voiced a similar opinion. Were they paid to remain silent?

    • August 26, 2011 at 9:38 pm

      Ashok

      Thanks for your comment.

      I believe AT&Ts August 8th redacted letter states that there is a business case for the LTE network expanision only if it owns T-Mobile’s assets (real estate, cell towers, equipment, spectrum, etc).

      Obviously that must be worth less than $3.8B, which is the amount of money AT&T estimated it would cost to do the “LTE -97% coverage” build-out on its own. But that amount was deemed to be too expensive by AT&T executives. But then why is AT&T paying $39B for T-Mobile? What’s the remaining $35B+ T-Mo price tag for, if its not related to the LTE network buildout?

      This appears to be very shaky, flawed logic by AT&T: $3.8B is too much to complete the LTE buildout on our own, so we’ll acquire a company (with assets but not the LTE technology) for $39B to help us get there???

      As noted in this article, AT&T wrote: “the acquisition of T-Mobile changes the calculus of LTE deployment” and makes it more acceptable for AT&T to “absorb the increased capital investment and lower returns.” But AT&T never stated why this was so, i.e. no documentation or proof was provided to justify the previous quoted statement! I wonder if the FCCs Wireless Telecom Bureau Chief- Rich Kaplan – is on top of this and if others see something that I’m missing? If not, AT&Ts rationale for the T-Mo acquisition is not at all solid, IMHO!

  8. August 26, 2011 at 10:03 am

    Thanks Alan for posting this good summary of the latest on this mega-merger (3x the size of the Google-Motorola deal). This is significant that the clock is being reset again. Maybe AT&T doesn’t think this is a done deal.

    It is interesting that AT&T keeps talking about 97% of the population, but that it only accounts for 55% of the geographic area, according to the redacted letter at the WSJ’s site. That leaves a large geographic portion of the country unserved, at least by AT&T, even after the merger.

    Dave Burstein has been arguing that this isn’t about spectrum and that, even without a T-Mobile purchase, AT&T would have to build out in order to remain competitive with Verizon’s build out. He has many good references at DSL Prime, including.
    http://www.dslprime.com/a-wireless-cloud/61-w/4192-atat-lte-result-on-us-coverage-0

    http://www.dslprime.com/a-wireless-cloud/61-w/4546-editorial-im-getting-sick-as-atat-lies-again

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