September 2011

T-Mobile May Suffer if AT&T Deal Fails

When AT&T agreed to buy T-Mobile USA in March, the deal looked like a happy fate for a company that had been losing customers and facing declining sales. But should the lawsuit filed by the Justice Department kill the proposed merger, some analysts say it could leave T-Mobile in a much worse position than it was before the deal was announced, its competitiveness sapped by months spent in limbo.

“This is a business that is treading water,” said Robin Bienenstock, an analyst at Sanford C. Bernstein & Company who tracks T-Mobile and Deutsche Telekom, its parent company. “They have to go back into the market in the meantime, and they are going to have to figure out a way to build momentum in their core business.” T-Mobile has long staked its reputation on offering low-cost service plans. But in recent months, the company has lost ground to its larger rivals, AT&T, Verizon Wireless and Sprint, which have lured away subscribers with popular devices like the iPhone and the promise of faster networks and services. The company’s position is especially precarious given the evolving state of the wireless industry, which is increasingly focused on customers willing to pay for expensive smartphones and the data plans that go with them. It will be harder for a company that emphasizes lower prices to stay afloat in that market, experts say.

AT&T spent 30% more on lobbying for T-Mobile deal

The Justice Department's move to block AT&T's purchase of T-Mobile USA marks a rare Washington defeat for the largest U.S. phone company, a failure that deal opponents called a triumph of antitrust analysis over lobbying muscle.

As it sought regulators' blessing for the transaction, AT&T boosted lobbying spending by 30%, to $11.7 million, in the first six months of 2011, vs. the same period last year, according to Senate records. Its PAC gave $805,500 to federal candidates this year, more than any other company, according to the Center for Responsive Politics. AT&T's lobbying strategy has been guided by 13-year company veteran Jim Cicconi, a Washington insider since serving in the Reagan White House. It produced letters to regulators from more than 70 members of Congress, multiple economic studies aimed at supporting the deal, and a pledge to preserve 5,000 jobs. Yet the Justice Department on Wednesday sued to halt the $39 billion deal, calling it harmful to competition.

Which operators emerged as winners and losers after the DOJ-AT&T fallout?

The Justice Department’s move to block AT&T’s acquisition of T-Mobile will likely have repercussions felt throughout the U.S. wireless industry. AT&T obviously lost the most.

The merger hasn't been killed outright, but AT&T will have to jump through many more hoops to close the deal, and it will likely have to make concessions it would have balked at if it only faced Federal Communications Commission scrutiny. But every other US operator big and small has a stake in whether or not AT&T’s merger with T-Mobile is approved, and if it is, under what conditions. How AT&T proceeds from here could affect other operators’ future acquisition plans and the ability of regional and rural operators to negotiate roaming agreements. If the deal goes through, networks and spectrum could be up for grabs in hundreds of key markets, triggering expansion drives among lower tier operators. While the merger would shift the balance of mobile customers to two big operators – Verizon and AT&T – it would also have a profound impact on the balance of spectrum ownership. In many cases, several operators stand to both gain and lose depending on how the merger proceedings shake out.

Fitchard says the winners are Sprint, T-Mobile, MetroPCS, Leap Wireless, and rural GSM operators. The losers? Verizon, T-Mobile, and Sprint.

Veteran Antitrust Judge in the AT&T Fight

As AT&T prepares to defend its $39 billion deal for T-Mobile USA against a lawsuit by the Obama Administration, the two sides will face a judge who has refereed many big antitrust fights.

Judge Ellen Segal Huvelle, in her 12 years on the United States District Court for the District of Columbia, has overseen numerous antitrust cases brought by regulators, including one in which she ruled against the government. She has also presided over prominent matters like the trial of the disgraced former lobbyist Jack Abramoff and the Securities and Exchange Commission’s settlement talks with Citigroup over subprime mortgages. The Justice Department’s lawsuit against AT&T is one of her biggest cases to date. It is the Obama administration’s most significant effort to halt a landscape-altering transaction, one that would combine two of the nation’s biggest cellphone service providers. And the tenor of both the Justice Department’s complaint and AT&T’s response suggests that a contentious brawl may be in the works, even as both sides leave open some possibility of a settlement. In a case this complex, with reams of market and technological data to consider, a jurist with experience presiding over antitrust matters may prove a boon for both parties.

Justice Dept.’s Key Officials in Pursuing the AT&T Lawsuit

The names of 25 government lawyers are listed on the last page of the Justice Department’s lawsuit seeking to block the proposed $39 billion merger between AT&T and T-Mobile USA. But two senior lawyers who played crucial roles in bringing the lawsuit are nowhere to be found on the complaint.

Christine A. Varney, the government’s former top antitrust lawyer, oversaw the investigation into the planned merger until July, when she said she was leaving the Justice Department to join the law firm of Cravath, Swaine & Moore. When she departed, the investigation was in its final stages but the government had not yet decided to bring a lawsuit.

And James M. Cole, the No. 2 official in the Justice Department, made the ultimate decision to bring what is the Obama administration’s most significant antitrust enforcement action to date. He announced the lawsuit at a news conference, one of his more prominent public appearances since he assumed the post in January.

Is Google-Motorola the Next Antitrust Case?

[Commentary] The Justice Department is going to court to stop the proposed merger of AT&T and T-Mobile USA. Will the pending union of Google and Motorola suffer the same fate?

At first glance, the two mergers appear to have little in common. AT&T and T-Mobile are in the same business, while Google and Motorola occupy different niches in the telecommunications ecosystem. But AT&T and Google share a common problem: Both are victims of bungled government regulation, and both need merger partners to sustain competitive momentum in the face of federal roadblocks. Indeed, it's unlikely that either would have risked such intense antitrust scrutiny if the government had been doing its job properly.

Justice apparently believes that the AT&T/T-Mobile merger would inevitably mean less competition -- and therefore higher prices and lower quality -- in the wireless carrier market. We're skeptical. For one thing, it's far from clear that T-Mobile is viable any longer on its own: Deutsche Telekom, the carrier's parent, is reportedly unwilling to make the huge investment T-Mobile needs to keep up with rivals. For another, carrier concentration varies from locality to locality, and some judicious divestiture of customers and spectrum would make a big difference -- which, one hopes, is all that the Justice Department is really after. In a perfect world, AT&T would be able to buy the spectrum it needs. However, the FCC has been slow in convincing broadcasters to give up some of their airwaves.

Google, for its part, faces a very different government-manufactured obstacle. The giant's Android operating system, which is licensed to a dozen equipment makers world-wide, is a runaway success. But, thanks to a government patent and copyright system that is ill-equipped to navigate the modern and complex issues of carving out rights in software, Google faces as-yet-unknown challenges to ownership of the intellectual property that makes Android tick.

[Hahn is director of economics at the Smith School, Oxford, and a senior fellow at the Georgetown Center for Business and Public Policy. Passell is a senior fellow at the Milken Institute]

Google Bought Motorola for More Than Patents

Google Chairman Eric Schmidt said his company’s planned $12.5 billion purchase of smartphone maker Motorola Mobility Holdings was aimed at acquiring products, and not merely patents. “We did it for more than just patents,” Schmidt said in a conversation with Salesforce DOT com Chief Executive Officer Marc Benioff. “The Motorola team has some amazing products.”

Motorola Deal Could Give Google A Huge Tax Break

Google not only gets patents, a phone business, and a set-top box business from buying Motorola. It could also get a huge tax break. According to calculations by tax expert Robert Willens, who laid out his reasoning to Reuters yesterday, Motorola's losses will help Google will reduce its tax liability by $1.7 billion in the year that the deal closes -- that's $1 billion from U.S. losses and $700 million from losses overseas. Google will also get about $700 million a year in new tax deductions through 2019. Motorola wasn't able to use these losses because it didn't have the revenue to offset them. Google doesn't have that problem.

Court signs off on Comcast takeover of NBC Universal

A federal court has approved the government's conditions placed on Comcast's takeover of NBC Universal. U.S. District Judge Richard Leon tacked on a two-year oversight period that aims to protect competitors who want to distribute NBC Universal video content online. He ordered the government and Comcast to report annually on online video competitors who attempt to arbitrate disputes either through the Federal Communications Commission or an arbitration process set up as part of the takeover.

Political Repression 2.0

[Commentary] Agents of the East German Stasi could only have dreamed of the sophisticated electronic equipment that powered Col. Muammar el-Qaddafi’s extensive spying apparatus, which the Libyan transitional government uncovered.

The monitoring of text messages, e-mails and online chats — no communications seemed beyond the reach of the eccentric colonel. What is even more surprising is where Colonel Qaddafi got his spying gear: software and technology companies from France, South Africa and other countries. Narus, an American company owned by Boeing, met with Colonel Qaddafi’s people just as the protests were getting under way, but shied away from striking a deal. As Narus had previously supplied similar technology to Egypt and Saudi Arabia, it was probably a matter of public relations, not business ethics. Amid the cheerleading over recent events in the Middle East, it’s easy to forget the more repressive uses of technology. In addition to the rosy narrative celebrating how Facebook and Twitter have enabled freedom movements around the world, we need to confront a more sinister tale: how greedy companies, fostered by Western governments for domestic surveillance needs, have helped suppress them.

Benton

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