AT&T-Mo fails FCC test but has one more shot

Updated. The Federal Communications Commission has joined the large group of regulators that are skeptical of AT&T’s planned $39 billion buy of T-Mobile on Tuesday when it said it was circulating an order that would send the deal to an administrative hearing. The decision is another hurdle in AT&T’s efforts to buy T-Mobile.

The FCC has found plenty to criticize in AT&T’s proposal, refuting Ma Bell’s claims about the supposed benefits of the merger from all sides in a press conference held Teusday. FCC lawyers found the merger would kill jobs, rather than create them, that the sum of the two operators’ 4G wouldn’t be greater than the parts, and that a merged AT&T-Mo would likely stifle wireless competition in 99 of the 100 largest markets – basically every major city but Omaha, Neb.

“The record clearly shows that — in no uncertain terms — this merger would result in a massive loss of U.S. jobs and investment,” a senior FCC official said.

Chairman Julius Genachowski is circulating a draft order recommending to commissioners that the FCC refer the case to an administrative law judge. That may sound like punting, but as FCC officials explained in a conference call the decision was the sharpest weapon the commission has at its disposal. The FCC can either approve the merger outright, approve it with conditions or refer it to a judge, if the FCC found fault with AT&T’s facts or felt the deal harmed the public good – which definitely seems to be the case.

FCC Chairman Julius Genachowski

The subtext here is that FCC staff don’t like the deal, they don’t want to negotiate or come to terms that would make the deal more palatable, so they’re taking the most definitive step they can take to kill it – passing it along to the courts. Chances are that’s where AT&T’s petition will stay because AT&T has several other regulators to deal with before it sees a hearing in that case.

AT&T is currently fighting off the U.S. Department of Justice’s lawsuit seeking to block the merger. The FCC said it plans to stand aside for those proceedings, scheduled to begin in Februrary. If the DOJ gets its injunction, then the FCC’s involvement is moot. If the courts back AT&T against the DOJ, then AT&T has to deal with multiple lawsuits from states attorneys general who have joined the DOJ’s filing as well as lawsuits from Sprint and other wireless operators. Update: Sprint also faces a review from the California Public Utilities Commission.

If AT&T overcomes all of those obstacles, than it gets its date with the FCC-referred law judge. The judge can rule for or against. If AT&T loses that round, too, it can petition the FCC for a reversal, but I doubt one would be forthcoming. If the FCC was in the mood to play ball, it would have gone into its usual ‘approval with conditions’ mode. There’s practically no chance that the deal could get that far. The last time the FCC referred such a case to a judge was in 2002, which effectively killed the merger between Echostar and Hughes (Dish and DirecTV). Still, no telecom deal that was challenged by the Justice Department every saw completion either. AT&T has tenacity, I’ll give it that.