ATT, T-Mo Deal: Rearranging the Titanic’s Deck Chairs
Rearranging the deck chairs on the sinking Titanic is an apt metaphor for AT&T's latest attempts to save its foundering merger with T-Mobile USA. Up against nearly insuperable odds, it makes seemingly pointless gestures to save something that seems destined to fail.
At least that's how AT&T's decision to pull its FCC application struck me. Yes, revoking the application could help avoid a hearing over the deal. But when you're already facing an antitrust lawsuit from the Department of Justice and an unwilling FCC, isn't it time to give up?
AT&T seems to think not, even if the expected $4 billion charge in its fourth-quarter earnings indicates an acknowledgement that its chances of success are slim. By withdrawing its bid for the deal with the FCC, AT&T and Deutsche Telekom will be able to focus their efforts on negotiating a pre-trial settlement with the DOJ that would presumably be more palatable to the FCC.
AT&T is apparently hoping to cut some sort of deal with the DOJ. Perhaps it will involve divesting 40 percent of T-Mobile's assets, as recently reported by Bloomberg. But it's hard to imagine a deal that would satisfy the DOJ's concerns about competition without rendering the $39 billion mega-merger a moot point.
What AT&T really needs and wants from T-Mobile are cell sites and spectrum. What the DOJ and FCC want is a competitive wireless industry and a minimal impact on jobs. Without massive divestitures, there's little room for middle ground. With massive divestitures, there’s no reason for AT&T to buy T-Mobile in the first place.
Either AT&T backs away from the T-Mobile acquisition and the industry remains competitive, or it buys T-Mobile and gains a near-duopoly on the wireless market together with Verizon. Given the heightened state of consolidation already present in the industry, there's not a whole lot of room for a transaction on the scale of AT&T's merger with T-Mobile.
I keep thinking of a quote from DOJ acting antitrust chief Sharis Pozen when the department announced its move to block the deal: “Any way you look at this transaction, it's anticompetitive.”
It’s tough to negotiate with that.
And how do they expect to generate "synergies" from the deal without massive layoffs, which are one of the FCC’s primary concerns? AT&T keeps saying it will repatriate call center workers and generate jobs through investment in its LTE network, but it's highly doubtful that those jobs will offset layoffs of redundant employees.
Even if AT&T is able to restructure the deal and reach an agreement with the DOJ, it will still have to pass muster at the FCC with another interminably long review process. The FCC, for its part, doesn't seem swayed by the purported benefits of the deal and shares the DOJ's concerns about jobs and competition. Reworking the terms of the merger and shedding assets might help that - but then again, it might not.
The last time the FCC called for a hearing on a transaction - Echostar's attempted buyout of DirecTV in 2002 - the companies had the good sense to withdraw their applications and give up their plans to merge.
It's time for AT&T to do the same. Its acquisition of T-Mobile has hit an impasse and it's time to turn back.