WASHINGTON—A confluence of legal, technological and political forces could slow or significantly alter mega-merger mania that has raged largely unabated in the wireless and wireline telecom sectors in recent years, with AT&T Inc.’s $67 billion bid for BellSouth Corp. materializing into a grand test case—potentially a colossal casualty—of an antitrust landscape whose contours may well be determined in the near future by a single federal judge.
Judge Emmet G. Sullivan, of the U.S. District Court for the District of Columbia, recently signaled he wanted to re-examine Department of Justice antitrust consent decree approvals of Verizon Communications Inc.’s acquisition of MCI Inc. and SBC Communications Inc.’s purchase of AT&T Corp. last year.
On Tuesday, Sullivan is expected to disclose further where he is headed on a lawsuit filed by competitive telecom groups challenging the Bell/long-distance combos.
“Judge Sullivan is largely breaking new ground in applying an updated federal law (The Tunney Act) that essentially gives federal courts the authority to examine the competitive impact of a merger. The application of the law in this case is based on the presumption that the (Department of Justice) failed to act in the public interest,” said Jessica Zufolo, an analyst at Medley Global Advisors L.L.C.
It is unclear to what extent Sullivan, who works at the same courthouse that once housed late U.S. District Judge Harold Greene of AT&T break-up lore, might leverage new merger review powers approved by Congress in 2004.
“We continue to believe the SBC-AT&T and Verizon-MCI combinations will not be reversed, though there would be some slight risk down the road of new divestitures,” said Stifel Nicolaus & Co. Inc. in an investment note. “We believe that if the judge stays within the harms cited by the DoJ, any additional conditions would likely be modest, while if he goes beyond those harms, potential remedies could be broader, but there would be more risk of being overturned on appeal.”
At the same time, Stifel Nicolaus said there could be more immediate fallout for AT&T’s proposed acquisition of BellSouth. “If the court probes further and the proceeding drags on, that could prod the DoJ and [Federal Communications Commission] to slow down their decision-making on AT&T-BellSouth, with some lesser chance—if the judge ultimately rejects the prior settlements—they would then demand deeper concessions.”
The Bell antitrust lawsuit is playing out against a backdrop of a major telecom rewrite in Congress and review of the AT&T-BellSouth deal by the DoJ and FCC. The purchase would put the wireless industry’s largest player Cingular Wireless L.L.C.—60 percent and 40 percent held by AT&T and BellSouth, respectively—under a single owner and otherwise create one of the largest telecom companies in the world.
AT&T told the FCC sole ownership has its advantages.
“Although Cingular has been a very successful joint venture, its dual ownership and resulting governance structures do not contribute to the streamlined decision-making and rapid innovation required in today’s highly competitive telecommunications business,” stated AT&T in a responses to follow-up FCC questions on the deal.
In the United States, AT&T, according to opponents, would dominate the mobile phone, broadband, long-distance and voice-over-Internet-protocol markets, as well as control a significant spectrum in the 2.3 GHz and 2.5 GHz bands being considered for alternate networks.
Indeed, the merger synergies and efficiencies heralded by AT&T and BellSouth represent the very dangers for competition and consumer choice voiced by consumer advocates, Sprint Nextel Corp., T-Mobile USA Inc., Clearwire Corp. and others.
Sprint Nextel and T-Mobile USA have warned about the potential harm of putting too much control of special access lines—links for carrying traffic from a wireless base station to a mobile or landline switching center—in the hands of a new company comprised of several regional Bell telephone companies.
Craig McCaw’s Clearwire is worried about what an AT&T-BellSouth might do to the emerging wireless broadband market and by extension to Clearwire’s ambitious business plans in that space. AT&T in a prior iteration made McCaw a multibillionaire by buying his cellular properties in 1994.
“After the merger, AT&T will have a nearly nationwide footprint in the WiMAX-capable 2.3 GHz band and will also acquire in the Southeast sufficient concentrations of spectrum in the WiMAX-capable 2.5 GHz band to anti-competitively impede the development of a nationwide mobile broadband platform in that band that could provide disruptive competition to AT&T’s wireline and wireless broadband offerings,” Clearwire told the FCC.
The Justice Department and FCC conditionally permitted a Sprint Nextel union that included a massive collection of 2.5 GHz assets throughout the country.
The FCC, for its part, appears to be looking very carefully at the possible impact of an AT&T-BellSouth marriage on inter-modal competition involving wireless, landline, cable, satellite, broadband and other communications delivery channels. The proposed merger and telecom reform legislation in Congress have raised a novel antitrust issue about whether the Bell telephone-cable TV broadband duopoly is able to modify or degrade content carried by Web giants such as Google Inc. and Yahoo Inc.
While the Bell antitrust case could indirectly aid those either opposed outright to the planned AT&T-Bellsouth merger and/or those insistent on safeguards as conditions of any approval of the deal, it could also prove to be an insidious double-edged sword.
The wireless industry—which has shrunk from six to four national operators—could find future large-scale acquisitions unthinkable rather than possible. Merger momentum could also come completely to a screeching halt for other telecom, high-tech and media sectors.
The Bell-long distance mergers lawsuit also could influence how telecom reform legislation is ultimately written.
For Bells and other major telecom industries in search of greater scope and scale, it could even get worse.
