Death of T-Mobile-AT&T deal may signal stronger federal antitrust hand

The death of AT&T’s bid to buy T-Mobile USA shows federal officials are giving mergers tougher scrutiny.

AT&T finally pulled the plug Monday on the $39 billion deal following a lawsuit from the U.S. Justice Department and opposition from the Federal Communications Commission.

“It’s pretty clear this administration has changed the landscape on merger policy” with stricter enforcement, said Paul Gallant, a Washington-based analyst with Guggenheim Partners.

AT&T wooed Democratic-leaning labor unions, winning support from the Communications Workers of America and the AFL-CIO. It drew letters of support filed with the FCC from groups representing cattle ranchers, songwriters, balloonists, governors and technology companies.

The approach ultimately failed because AT&T, led in Washington by Senior Executive Vice President Jim Cicconi, misjudged the regulatory atmosphere, said Craig Aaron, president of the policy group Free Press. Now AT&T ends up with a pretax charge of $4 billion to reflect payments and consideration to T-Mobile owner Deutsche Telekom.

“AT&T thought it could get it done simply because of its political clout,” said Aaron, whose group is based in Florence, Mass. “After years and years, there didn’t seem to be such a thing as antitrust enforcement any more. But now it’s clear, for some deals there is.”

AT&T, based in Dallas, spent $16 million lobbying in the first nine months this year, more than in all of 2010 and exceeding every corporation except General Electric and ConocoPhillips, according to the Center for Responsive politics, a Washington research group.

AT&T’s political committee gave $1.7 million this year to federal candidates and political parties, more than any other corporate PAC except Honeywell International, according to Federal Election Commission records.

“This shows that future deals can’t expect a rubber stamp,” Aaron said. “It sets an important precedent that the most egregious deals can’t be pushed through with campaign cash and the endorsement of balloon enthusiasts.”

The environment is changing as regulators also scrutinize Express Scripts’ proposed purchase of Medco Health Solutions. The $29.1 billion acquisition, which would result in the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, is under review by the Federal Trade Commission, and states have opened inquiries into the sale out of concern that the combined company will command too much market power.

Shares in Express Scripts, based in St. Louis, have plunged 22 percent since July 21, the day the deal was announced.

Washington “should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the U.S. wireless industry,” Randall Stephenson, chief executive officer of AT&T, said in an emailed statement. “Policy makers should enact legislation to meet our nation’s longer-term spectrum needs.”

He didn’t offer a specific legislative proposal in his statement.

Andrew Jay Schwartzman, policy director of Media Access Project, a Washington-based nonprofit law firm, said in an interview that AT&T mistakenly concluded that “politics could trump law.”

He added, “I hope this will embolden the FCC and Department of Justice to remain vigilant in the face of political pressure.”

AT&T’s decision is a victory for consumers, Sharis Pozen, acting assistant attorney general and the top antitrust official in the Justice Department, said in an e-mailed statement.

“Had AT&T acquired T-Mobile, consumers in the wireless marketplace would have faced higher prices and reduced innovation,” she said.

The FCC wants a competitive market that drives innovation and creates jobs, Julius Genachowski, the agency’s chairman, said in an emailed statement.

“This deal would have done the opposite,” Genachowski said.