That Was The Week That Was For AT&T/T-Mo. Is There A Next Week?

It’s been a fun few days in AT&T/T-Mo land to say the least. I swear, this has become my favorite telecom reality show since Death Star Reborn: The AT&T/BellSouth Telenovella finished its series run back in December 2006.

With even the German government, Deutsche Telekom’s largest shareholder, resigning itself to the deal unwinding, the only question that remains is how long AT&T will resist the inevitable. A review of this week’s developments below . . . .

On Monday, we at Public Knowledge filed our opposition to AT&T’s request to withdraw its application to acquire DT. We also urged the FCC to release the proposed Hearing Designation Order even if it granted AT&T’s motion to withdraw. We argued that AT&T sought to suppress an adverse decision by exploiting a procedural loophole. Given that AT&T has consistently tried to control the national debate and undermine criticism by declaring any potentially embarrassing information “highly confidential,” a practice we challenged during the course of this proceeding, we argued that the public deserved to see the questions staff raised about AT&T’s job creation claims, rural broadband deployment, and other public interest benefits.

You can see AT&T’s responses to our filings here and here. I do particularly want to commend Jim Ciconni’s blog post responding to our legal arguments. (As opposed to his most recent blog post responding to the staff report, about which I shall have more to say below and in a separate post).  Not all of AT&T’s success comes from lobbying muscle. Jim’s response is well argued legally and well written. As it happens, I disagree with him regarding the nature of the FCC’s discretion here (I think they have it) and read the case he cited, Environmental Services, LLC v. FCC as supporting FCC discretion, not dictating the outcome. Still, that’s what makes the legal profession fun. Different lawyers read the law differently and do their best to persuade the decision maker that his or her position is the right one.

(Mind you, this makes the current “response” to the staff report all the more disappointing. Guys, not only did staff meticulously analyze all your claims, but they pointed out that most of your claims were contradicted by your own internal documents. I know you are not used to getting called on that sort of obvious baloney, but when you are caught with your hand in the cookie jay and crumbs on your shirt it looks silly to say that it is procedurally unfair to send you to your room without your merger.)

Tuesday, the FCC allowed AT&T and Deutsche Telekom to withdraw their applications without prejudice. At the same time, it released the proposed hearing designation order as a staff report.  Not surprisingly, I consider this a major win for the public and the right thing to do. AT&T has spent millions of dollars to persuade the public that the merger will create jobs and bring other benefits while doing no harm to competition, but at the same time it refuses to submit these claims to an evidentiary hearing and uses broad claims of confidentiality to shield embarrassing admissions that undercut these claims from the public. In light of this, I find AT&T’s protests about procedural fairness a shade hollow.

Additionally, it is an act of profound political courage by Chairman Genachowski. It would have been easy to grant AT&T’s request and bury the report, lamenting that AT&T had defeated him with a procedural trick. Instead, he decided to let the public (and the district court considering the antitrust case) see what the agency’s expert staff thinks of the evidence AT&T insists supports its claims. Answer: The expert staff of the expert agency don’t think very much of it.

The staff report is so good, so comprehensive, so wonderfully vicious and snarky while simultaneously avoiding any suggestion whether the existing market might have some problems, that it is getting a post of its own as soon as I can manage. Seriously, I keep hearing the opening number from “Legally Blond – the Musical” (Omigodyouguys!) every time I read it. Oh, that I have lived to see this day! As others have noted, it basically says: “Do you think we are stupid? Not only are your models inaccurate and results driven, but your own internal documents show you don’t believe this nonesense you expect us to swallow. Oh, and that EPI report on jobs you keep throwing around, it doesn’t say this merger will create jobs. So please stop lying your ass off about this or prove it to an administrative law judge.

What Happens Next?

Beats the heck out of me. We are in serious terra incognito here, and everyone is pretty much making this up as it goes along. But let me run through a few basics so we are all guessing under the same set of understandings.

Legal Status of the Report: AT&T is right when they point out that the report does not have any legally binding authority. In this respect, it is like any other staff report. In legal terms, as set forth in United States v. Mead Corp., it is simply “persuasive authority” that a court should evaluate as the opinion of an expert but not a determination under the authority delegated by Congress to which a court must show actual deference.

Impact on Antitrust Case: Assuming AT&T continues its Black Knight v. King Arthur strategy, I expect them to show up at the next status conference all rarin’ to go. With this Order in their back pocket, I expect DoJ to be equally rarin’ to go. But I do expect Judge Huvelle to press both parties on whether there is any point in going on, given that AT&T has withdrawn its application and three Commissioners made it abundantly clear that if AT&T and DT come back with precisely the same application, they will vote the hearing designation order as soon as the FCC’s ULS database confirms receipt.

It is also entirely possible that if AT&T wants to buy time, either to work out some possible new deal or put pressure on DT to renegotiate the break up fee by dragging things out, will ask the court to hold the case in abeyance. And, of course, DoJ could ask for that as well – although I don’t see why they would at this point.

I do not expect Judge Huvelle to make any immediate decision at the status hearing. She may even ask the parties to brief the question of whether to hold in abeyance or not. My bet is, if no one asks the court to hold this in abeyance, then she probably won’t do it on her own. As I noted last time, nothing requires companies merging to go in any particular order and, until AT&T and DT officially call it quits, there remains a live controversy for the court to decide. So might as well stick to schedule and decide it now rather than wait to see if the parties restructure and go back to the FCC with something different.

The Eternal Rumors Around “Plan B”: At every set back, we see a new swirl of rumors of some sort of possible settlement or restructuring by AT&T and DT. These rumors are almost as quickly followed by skepticism and denial by those not emotionally attached to seeing this deal succeed. I have written before here andhere why I find this unlikely, and the odds don’t get better the more radical the restructuring that gets proposed. I shall have more to say about the latest rumors in a future post (I hope).

In the meantime, we should sit back and enjoy the show. With the mainstream media finally catching on that AT&T might have stretched the truth a bit, both about the benefits of the merger and the likelihood of closing, I’m not sure how long AT&T will continue to spin this out. But not to worry, I plan to sit through ’till the final episode.

Stay tuned . . . .

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