AT&T Plans to Woo US And Fight It
WASHINGTON — AT&T plans to approach the Justice Department to discuss conditions, including the sale of assets or the transfer of subscribers to other companies, that would allow its merger with T-Mobile to be completed, people close to the transaction said Friday.
AT&T has a strong incentive to determine how many conditions the Justice Department might impose on the proposed merger. If the costs of those conditions are “reasonably likely to be more than $7.8 billion,” according to the merger agreement, AT&T can walk away from the transaction without having to pay a breakup fee to T-Mobile of $3 billion in cash plus wireless airwaves worth an estimated additional $3 billion.
Those are among the many tea leaves that watchers of the telecommunications industry have been poring over in the two days since the Justice Department filed a lawsuit seeking to block the proposed merger on antitrust grounds.
It will be a delicate balancing act for AT&T to both fight the Justice Department in court, as it has vowed to do, and to try to cozy up to the antitrust officials and regulators by promising to shed assets and to agree to monitoring and regulation that the antitrust division would be likely to require for the merger to proceed.
But two people close to the transaction, who spoke only on condition of anonymity, say AT&T has already started traveling down those dual tracks. While no date has been set for a settlement meeting with the Justice Department, those people said, AT&T intends to begin laying out its case later this month.
Drafting a deal that will satisfy the Justice Department will not be easy. In the antitrust lawsuit it filed on Wednesday to block the deal, the Justice Department noted that AT&T and T-Mobile competed head-to-head in 97 of the top 100 cellphone markets in the United States. Even if AT&T offered to give up customers in one-third of those markets, it would still be eliminating one of its biggest competitors in a wide swath of the country.
“It’s hard to imagine conditions that would accommodate Justice’s concerns that wouldn’t leave the deal unacceptable to AT&T and T-Mobile,” Melissa H. Maxman, co-chairwoman of the antitrust practice group at Cozen O’Connor, a law firm in Washington, said Friday.
The surprise lawsuit has also left many on Wall Street wondering what became of AT&T’s vaunted lobbying operation. Already one of the top five corporate spenders in the country over the last five years, according to the Center for Responsive Politics, AT&T raised its spending even further in the first half of 2011.
According to Senate records cited by Bloomberg news, AT&T spent nearly $12 million on lobbying efforts in the first half of this year, up 30 percent from a year earlier. The Center for Responsive Politics said that AT&T also gave more money to federal candidates this year than any other corporation.
But relatively few members of Congress objected loudly when the government announced its lawsuit.
Some of AT&T’s harshest critics among consumer advocacy groups, as well as competitors like Sprint Nextel, say that there are essentially no conditions that would satisfy their concerns about the merger and its effect on competition in the wireless industry.
“No, there is no way to condition this merger in a way that preserves competition and also provides the supposed benefits that AT&T says the merger will provide,” Gigi B. Sohn, president of Public Knowledge, an advocacy group, said. No matter what conditions the Justice Department might agree to, she said, a merger would eliminate one of only four national wireless companies. And the top two of those — AT&T and Verizon — would together control 80 percent of the market.
At least one competitor is not opposed to trying to find a way for the merger to work, however. MetroPCS, which currently ranks a distant fifth among wireless companies, has laid out in filings at the Federal Communications Commission several conditions that it believes could allow smaller wireless companies to compete with a merged T-Mobile and AT&T.
Those include the sale of wireless spectrum — the airwaves over which cellphone signals are carried — to one of the smaller, regional carriers; roaming arrangements that allow regional providers to use the network of the combined AT&T and T-Mobile at specified rates; and guarantees that the smaller companies will be able to negotiate fair deals for access to new handset technology with hardware providers.
Because of the unusual breakup clause that would allow AT&T to escape the deal, “It’s in AT&T’s interest to negotiate heavily with both the F.C.C. and Justice” over possible conditions or divestitures that might let the merger go through, said Susan Crawford, a professor at the Benjamin N. Cardozo School of Law at Yeshiva University.
There is little doubt that AT&T was actively engaged in recent days in discussions with the Justice Department before the government filed its case. In the two weeks before the antitrust lawsuit was filed, AT&T met at least three times with Justice Department lawyers, F.C.C. officials and representatives of state attorneys general to review aspects of the mergers, according to documents filed with the F.C.C.
In those meetings, “AT&T was just refusing to accept the idea that the government might say no to them,” said one person who attended several of the meetings, but who spoke on the condition of anonymity because the meetings were confidential.
But it is also almost certain that the lawsuit came as a surprise to AT&T. Just hours before the Justice Department’s lawsuit was announced on Wednesday morning, the company’s chief executive, Randall Stephenson, was interviewed on CNBC’s “Squawk Box.”
On that program, he said that he still expected the merger to close in the first quarter of next year. “We’re deep into the analysis with the Department of Justice,” Mr. Stephenson said, “and it’s all the data-gathering and analysis you might expect.”