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AT&T merger bid puts Obama in a bind

The administration is trying to mend fences with a business community still upset over healthcare and financial regulatory overhauls. But it is facing pressure from Democrats to reject the deal.

March 22, 2011|By Jim Puzzanghera, Los Angeles Times
  • Approval for AT&Ts purchase of T-Mobile USA would have to come with tough conditions, experts say. Above, AT&T's offices in Detroit.
Approval for AT&Ts purchase of T-Mobile USA would have to come with… (Paul Sancya, Associated…)

Reporting from Washington — AT&T Inc.'s proposed $39-billion purchase of T-Mobile USA puts the Obama administration in a bind as it tries to mend fences with a business community still upset over healthcare and financial regulatory overhauls.

President Obama has tried to be more friendly to corporate America as he urges companies to boost their hiring to reduce the high unemployment rate. He also wants wireless Internet to be expanded to far-flung rural areas, something the acquisition could foster.

But the Obama administration is facing pressure from fellow Democrats and public interest groups to reject the deal, which would create a wireless behemoth and result in two companies — AT&T and Verizon Wireless — controlling 70% of the cellular telephone market.

Consumer advocates warn that the combination would lead to higher prices for consumers, less innovation and job losses through consolidation. And it could open the door to Verizon making a bid for Sprint Nextel Corp., now the fourth-largest provider, or to Sprint trying to gobble up a number of smaller players.

For those reasons, analysts said, AT&T faces tough odds in securing the necessary regulatory approval from the Federal Communications Commission and the Justice Department during reviews that are expected to last a year.

"This is without question the biggest merger challenge the antitrust division has faced during the Obama administration," said Robert Litan, a former Justice Department antitrust official under President Clinton.

He said AT&T has an "uphill climb" to convince regulators the transaction wouldn't reduce competition, though the Obama administration has yet to turn down a major corporate deal.

U.S.-traded shares of T-Mobile's parent company, Deutsche Telekom, rose $1.55, or 11.4%, Monday to $15.13. AT&T shares gained 32 cents, or 1.1%, to $28.26. Sprint fell 69 cents, or 13.6%, to $4.36.

AT&T, one of the nation's most politically influential companies, is poised for battle.

Its political action committee and employees have contributed $46 million to federal candidates over the last two decades, more than any other company, according to the nonpartisan Center for Responsive Politics.

AT&T spent $15.4 million lobbying Washington last year, the eighth-highest of all corporations. And it has ties to the White House — Obama's chief of staff, William Daley, is a former president of SBC Communications Inc., which bought AT&T in 2005, creating the current telecom giant.

"AT&T is the most aggressive, most hard-nosed player in the political realm of communications," said Andrew Jay Schwartzman, policy director of the Media Access Project, a public interest law firm. "They will make it difficult for the Obama administration."

AT&T has demonstrated its political savvy already.

Unlike T-Mobile, AT&T is largely unionized and has support for the deal from the Communications Workers of America and the AFL-CIO, two influential Democratic constituencies.

And AT&T said that as part of the deal, it would expand its next-generation wireless service, known as 4G, to 46.5 million more customers than planned — among them, T-Mobile's 34 million subscribers.

The service would reach 95% of the U.S. population, including rural communities and small towns, thus helping achieve goals set by Obama and Federal Communications Commission to connect "every part of America to the digital age," AT&T said.

"They're saying, 'You let us buy T-Mobile, and we'll provide faster wireless to 95% of the U.S., including rural America — isn't that great?'" said Kevin Roe, a technology analyst at Roe Equity Research.

To counter concerns about the merger, AT&T also is predicting better wireless service for its customers.

"I think it's going to vastly increase voice quality and position us for much better data speeds and access as well," said Andy Shibley, AT&T's vice president and general manager for the Los Angeles region. But he would not say whether the deal would lead to lower prices for AT&T customers.

Lawmakers aren't yet sold on the deal, given the increased industry consolidation that would take place. House and Senate committees have promised hearings.

"Congress must take a close look at the plan to ensure that the proposed merger promotes a healthy and competitive telecommunications market," House Judiciary Committee Chairman Lamar Smith (R-Texas) said.

Though the FCC is an independent agency and the Justice Department's antitrust division usually is shielded from political interference, the White House can wield influence. For example, Obama probably will nominate a replacement this year for Democrat Michael J. Copps — whose FCC term ends at the end of the year — before a regulatory decision is expected.

Officials at the White House, FCC and Justice Department declined to comment.

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