Genachowski moves to block AT&T merger with T-Mobile

AT&T's proposed merger with T-Mobile would cause the largest concentration of the wireless market in history, Federal Communications Commission officials said on Tuesday as they announced that the $39 billion deal would likely be reviewed by an administrative judge.

On Tuesday morning FCC Chairman Julius Genachowski circulated a draft order which, if approved, would call for an administrative hearing of AT&T's bid to buy T-Mobile's wireless spectrum licenses. The order for such a hearing could be the death blow to a merger already facing a Justice Department lawsuit.

AT&T Senior Vice President of Corporate Communications Larry Solomon called Genachowski's decision "disappointing."

"It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both," Solomon said in a statement. "At this time, we are reviewing all options."

In a conference call with reporters, FCC officials said the data they collected during the merger review process did not support AT&T's claims that the merger would help consumers and create jobs. In fact, officials said, they determined that combining the companies would result in big layoffs.

If a merger is found to not be in the public interest, or if facts don't back up a company's claims, the FCC must call for an administrative hearing, FCC officials said.

An administrative hearing would give AT&T as well as its opponents a last chance to make their case. The judge's ruling would then go back to the full commission for a final vote. That final vote is also subject to review by federal courts, potentially prolonging the legal fight.

FCC officials said they would seek to delay any administrative hearing until after a judge rules on the Justice Department's lawsuit to block the merger.

In some potentially good news for AT&T, Genachowski also circulated an order conditionally approving AT&T's bid to buy wireless licenses from Qualcomm.

The last merger to be referred to an administrative hearing was EchoStar and DirecTV, which was rejected by the FCC in 2002. In that case, the hearing was a formality after the commission voted unanimously to call for the hearing.

The AT&T merger would create the largest telecommunications company in the United States. U.S. District Court Judge Ellen Huvelle has set a court date of Feb. 13 to hear the case. Legal experts say the outcome is far from clear.

Sprint, which filed its own antitrust lawsuit against the merger, praised the FCC's move as more than justified.

Public interest groups and other critics of the merger also applauded the move.

"Even though this was something that we have expected all along, it is very promising that the FCC will be taking a hard look at the AT&T/T-Mobile transaction," Media Access Project Senior Vice President Andrew Jay Schwartzman said in a statement.

"A decision to designate a hearing constitutes a finding by the FCC that there are 'substantial and material' questions as to whether the deal is in the public interest. It means the FCC has found merit in our arguments that a combined AT&T/T-Mobile will create a duopoly in the wireless market which will increase prices for service and for handsets."

In August after the Justice Department filed its lawsuit to block the merger, Public Knowledge Legal Director Harold Feld said it would be the "kiss of death" for the merger if the FCC were to refer the matter to an administrative law judge.

In a research note issued after the news broke, the investment research firm Stifel Nicolaus said the administrative law judge process could "easily" take a year or more.

"Such an extended FCC review could put added pressure on T-Mobile to seek to exit the merger, though it would have to negotiate with AT&T over the $3 billion break-up fee and related roaming and spectrum terms if it wanted to get out before allowed under the current deal (lasting at least through March, with two extensions allowed through next September)," the firm said.

Still, AT&T and T-Mobile may choose to continue to fight in court against the Justice Department's lawsuit with the hope that a favorable ruling may force the FCC and Justice Department to agree to a settlement, Stifel Nicolaus added.