Why the Lawsuit Blocking AT&T's T-Mobile Takeover Should Not Surprise You
In the wake of the Justice Department's decision to sue AT&T and Deutsche Telekom to block the proposed takeover of T-Mobile, I think it's helpful for reporters, analysts, public interest advocates and consumers alike to look at what then-Senator Barack Obama said about antitrust law when he was campaigning for the presidency.
In the news coverage of DOJ's lawsuit, that's been entirely absent.
OBAMA'S PROMISE TO REINVIGORATE ANTITRUST ENFORCEMENT
Here's what President Obama said he would do at DOJ's Antitrust Division if we elected him:
Antitrust law, Obama wrote, "...addresses the temptation that some business will sometimes experience, to merge with key rivals instead of outperforming them, to agree not to compete too hard, or to sabotage rivals' efforts to serve consumers instead of redoubling their own."
Obama also wrote that, "Antitrust is the American way to make capitalism work for consumers. Unlike some forms of government regulation, it ensures that firms can reap the rewards of doing a better job. Most fundamentally, it insists that consumers -- not government bureaucrats, and not monopoly CEOs -- are the judges of what best serves their needs."
Obama went on to promise that if he was elected, the Obama Justice Department would, "reinvigorate antitrust enforcement...[and] step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare, while quickly clearing those that do not."
As I think about this transaction proposed by AT&T and Deutsche Telekom and the Justice Department's lawsuit which challenges it, it's clear that the DOJ is doing exactly what then-candidate Obama promised. No one should be surprised by this lawsuit, especially AT&T.
AT&T TO DOJ: LET'S MAKE A DEAL
In the wake of the federal lawsuit by DOJ, AT&T's has indicated that it's now ready to negotiate divestitures or conditions to secure approval. In light of that, the army of AT&T lobbyists and lawyers may be tempted to take heart in the promise that the Obama Justice Department will "take effective action to stop or restructure those mergers that are likely to harm consumer welfare..."
But from where I sit, that would be a mistake. Such a restructuring is an impossibility.
Once T-Mobile, the low priced carrier with good customer service is chopped up into parts, there will not be a fourth national carrier to take its place. T-Mobile will be gone. And does anyone think that AT&T is going to abandon whole markets -- say San Francisco or New York or Atlanta or Dallas? Would AT&T be willing to give up its status as a national carrier with a national footprint, leaving Verizon and Sprint as the remaining national carriers? And who would buy the parts that would keep T-Mobile's low cost plans in place? Verizon Wireless? (They're the most expensive of all!)
Does anyone think that AT&T, Inc. -- the landline AT&T -- would divest entirely of AT&T Mobility, LLC -- the wireless division of AT&T? Would AT&T CEO Randall Stephenson agree to abandon his anticompetitive stance on wireless roaming or his special access ATM machine? And even if he did, the government would still have to take action against the highly litigious Verizon, an effort Verizon would surely fight.
The easier path for Stephenson and AT&T would be if they go through the motions of fighting the DOJ, so they don't have to pay Deutsche Telekom that break-up fee, and then pursue their previously planned $3.8 billion expansion of 4G, which the company last considered in 2010. (In the process, they would still save AT&T shareholders about $30 billion vs. the T-Mobile offer price.)
AT&T: THE COMPANY OF LOBBYING EXCESSES
I think AT&T's rationale for this stinker of a deal was based on its own arrogance and false belief that Washington, D.C. can be bought. The company cravenly presented its $6 billion break-up fee to Wall Street as a sign that they had privately shopped the T-Mobile takeover to DOJ and the FCC and gotten "pre-approved" with a wink and a nod before the announcement of the deal. After all, Wall Street reasoned, what else would justify such a high break up fee? AT&T must know something we don't, Wall Street reasoned. Over the course of the weeks and months after the deal was announced, AT&T trotted out civic groups and elected officials who supported the deal but denied that support was due to financial contributions from AT&T. Wall Street bought this hook, line and sinker.
WALL STREET ACCEPTED AT&T'S POLITICAL ANALYSIS AS FACT; MISJUDGED THE REGULATORY HURDLES
The members of the investment community I met with in March and April, shortly after the transaction was announced had clearly bought into AT&T's political analysis as fact. Approval was "inevitable" -- something one respected telecom analyst pronounced in less than 24 hours after the proposed transaction was announced or before any merger application was filed at the FCC or DOJ.
Wall Street looked at AT&T's record setting political contributions and lobbying expenditures as proof that AT&T would get what AT&T wanted. When I told them that this was a serious law enforcement investigation that DOJ was undertaking, they scoffed. When I told them that the DOJ was fiercely independent and would bristle at any attempt at political interference by the White House or Congress, they politely smiled and shook their heads. Wall Street saw this as a political deal to be had, not a matter of whether the transaction was lawful or not.
Well, I left those meetings with institutional investors stunned that people who know so much about the balance sheets of the telecom players knew so little about how our government actually works. But maybe because I once worked at DOJ and saw that independence firsthand, I remained confident that these investors would be proven wrong. (By the way, I worked at Justice under two Republican Attorneys General.)
"ALL BUT DEFINITELY DEAD"
Eventually, with this week's lawsuit, Wall Street analysts are now beginning to accept the reality that the government means business. At least one analyst is predicting the deal is "all but definitely dead."
I'm not sure if I believe that. Anything can happen in court. (I've been to oral arguments and left convinced that a judge would rule one way and the judgment, once published, goes the other way.)
I'm also unwilling to ignore the ongoing work of the Federal Communications Commission, the California Public Utilities Commission and the 11 state Attorneys General known to be investigating the proposed transaction. These regulators and law enforcement officials appear to be presenting some very, very high hurdles. Even if the Justice Department loses its suit or if AT&T negotiates some sort of deal with DOJ, there is no guarantee that the FCC, the CPUC or the state AGs would sign on.
We will see what unfolds.
But I as write this post just a few days after the DOJ lawsuit was announced, this much I know: the "air of inevitability" which Wall Street believed had descended upon Washington the day after the T-Mobile takeover was announced has definitely cleared.
As for me, I like that fresh air that's blown through town.
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