FCC lets AT&T off the hook, but still releases damning merger report

Updated: The Federal Communications Commission has accepted AT&T(s T) and Deutsche Telekom’s request to withdraw their merger position, despite an outcry from public interest groups that the commission go in for the kill. It’s AT&T’s hope that it can resubmit its application to the FCC after it overcomes its antitrust suit the U.S. Department of Justice filed to block its $39 billion acquisition of T-Mobile USA. That’s probably a long shot, but at least AT&T is now free to fight one battle at a time.

AT&T, however, didn’t get everything it wanted. The FCC is releasing its 109-page staff report that found that the merger would do more public harm than good. The report will be redacted to protect confidential information submitted by AT&T and T-Mobile, but it will contain the full explanations of why the commission staff thought the merger was a lemon. FCC lawyers countered almost all of AT&T’s claims about the deal’s supposed benefits, stating the merger would kill jobs, rather than create them; would result in a 4G network no bigger than AT&T would build on its own and would stifle wireless competition in 99 of the 100 largest U.S. markets. (The full report is available on the FCC site)

Update: “Competition is the engine of our free market economy and a cornerstone of the FCC’s mandate,” FCC chairman Julius Genachowski said in a statement. “Our review of this merger has had a clear focus: fostering a competitive market that drives innovation, promotes investment, encourages job creation, and protects consumers. These goals will remain the focus if any future merger application is filed.”

The FCC couldn’t deny the merger outright last week, but it appeared set to use the most powerful weapon at its disposal: sending it to an administrative law judge for review. Rather than deal with two judges simultaneously, AT&T opted to withdraw its petition last week before Genachowski tabulated an official vote of commissioners.

That raised the hackles of consumer advocacy groups Public Knowledge and the Media Access Project, which accused AT&T of trying to game the system. They petitioned the FCC to deny AT&T’s request, claiming an evidentiary hearing before an administrative judge would air all of AT&T’s dirty laundry – some 1 million documents that the FCC has reviewed – which could have a direct bearing on the DOJ’s antitrust case. Dish Networks has even called for the FCC to publish its findings, according to Bloomberg.

AT&T claimed that the FCC had no right to deny withdrawal of its petition, saying that it submitted its request before the commission voted. AT&T senior EVP and general counsel made the argument very forcefully in a statement:

“The FCC’s own rules give us this right and provide that the FCC ‘will’ grant any such withdrawal.  Further, this has been the FCC’s own consistent interpretation of its rules.   We have every right to withdraw our merger from the FCC, and the FCC has no right to stop us. Any suggestion the agency might do otherwise would be an abuse of procedure which we would immediately challenge in court.”

Credit: Hasbro

FCC officials, however, said the decision to approve or deny was under the commission’s discretion. While the deal’s opponents won’t get their evidentiary hearing, they’ll get their paperwork. The FCC also plans to keep the docket, keeping any comments and filings in the record if AT&T does choose to resubmit its merger application. An FCC official said the commission has never faced a situation like this before – in which an operator takes a petition to the brink, pulls back but publicly admits it plan to return to the edge in the future. If AT&T resubmits its report the process starts again and Ma Bell gets a new 180-day clock. Given the circumstances, the official said the FCC felt it was in the public interest to release the information it had collected and keep the record open while AT&T deliberates.

Meanwhile, rumors are popping up that AT&T is trying to nail down an eleventh-hour deal that would make the merger more palatable to the DOJ. Last week, Bloomberg reported that AT&T was willing to part with as much as 40 percent of T-Mobile’s assets to close the deal. On Monday, the New York Times’ Dealbook reported that AT&T is in talks with Leap Wireless(s Leap) to sell it a big piece of T-Mobile’s customer base, networks and spectrum. Leap, a regional operator that sells mobile service under the Cricket brand, would certainly welcome the opportunity to expand beyond its footprint of small and mid-sized markets, but it probably doesn’t have to resources to buy the assets. That is unless AT&T were desperate enough to give them away for a song.