Today a government suit to block AT&T's $39-billion acquisition of T-Mobile was delayed until mid-January, with a federal judge asking the companies to file a brief "describing the status of their proposed transaction, including discussion of whether they intend to proceed with the transaction at issue in this litigation."
The delay was the newest obstacle to AT&T's embattled merger plans. On Friday, federal U.S. District Judge Ellen Huvelle grilled the company's lawyers over whether the suit was wasting the court's time and taxpayer money. Of concern is the fading likelihood that the planned acquisition will gain legal and regulatory clearance by next September, when the deal contractually expires. At that point, AT&T would be obligated to pay T-Mobile a $4-billion breakup fee.
The transcript of Friday's hearing makes clear the judge's skepticism -- and even frustration -- as she repeatedly refers to the strategy of AT&T's lawyers as "presumptuous." At the core of the issue is that, in order to complete its deal, AT&T must not only win or settle the Justice Department's antitrust case, but must also gain approval from the Federal Communications Commission, which controls national spectrum licenses.
But AT&T withdrew its clearance application from the FCC last month. So, Huvelle repeatedly asks, why should the case proceed in her courtroom if the company is no longer trying to get the necessary FCC approval, especially as the clock ticks closer to September?
Huvelle appears particularly piqued by the idea that AT&T is asking the court to hurry up so the company can use her ruling as leverage to get the FCC's clearance.
The following are edited excerpts from the hearing, the entirety of which is transcribed here.
The judge's concerns
Judge Huvelle: ...I have no assurance that you're gonna proceed with the FCC in any way to get this resolved in a timely manner. So to ask me to issue an opinion with enough time to allow for an appeal for the FCC, which we don't know what their timetable is -- you've had no discussion, I'm sure, or assurances from them, I suspect, unless you want to tell me otherwise. If I had assurances, I might be willing.
...But it's a bit presumptuous to say nothing has changed [since the withdrawal of the FCC application] and you should just keep doing what we convinced you to do over the objection of certainly the Department of Justice without me knowing for sure that the deal will be the deal. I mean, you could change the deal in a month and everybody's time will be wasted, including the third party [Sprint and others, which have also filed their own suit against the acquisition.].
...We don't have any confidence that we are spending the time and effort and the taxpayers' money as well as the money of these other parties, we have no confidence that we're not being spun.
AT&T's argument: the trial will help with FCC approval
AT&T's counsel: ...By having their complaint out there and unresolved, [the Justice Department is] having a pocket veto over our deal. In other words, if this trial gets pushed back, if all the things get pushed back, we don't make thresholds, [the] deal has to blow up. We have no alternative. Yet the government has never proved a single thing in court.
...With all respect, Your Honor, I understand Your Honor's concerns, but from the perspective of having a committed transaction with contractually set dates, we've all gated our expectations. We are moving forward with trial. We're making progress, and it will be of assistance to the FCC to have a decided case on the antitrust issues. It just will. And it will put us in a position --
Judge Huvelle: Nobody there said that to me. Have they said that to you?
AT&T's counsel: Pardon me, Your Honor?
Judge Huvelle: I said has anyone said that to you? Honestly. I mean, you think it will if you win, but --
AT&T's counsel: Many people have that said to me.
Judge Huvelle: From the FCC?
AT&T: I have not spoken to the FCC, Your Honor. But, truthfully, it only makes sense that
if this court has decided the antitrust issues, the same government will be bound by those decisions as to the antitrust issues. There just doesn't seem to be -- I don't think that's a live issue.
"Use" the ruling to sway the FCC?
AT&T's counsel: We need to get those issues clear, and we need to move with the FCC as well. But the fact that we have chosen not to have parallel proceedings, but rather have chosen as a matter of -- pardon me. To essentially get those issues resolved here and use that --
Judge Huvelle: Yeah, use it. I understand that.
AT&T's counsel: -- with the FCC, but to have this court's guidance. And we think with this court's --
Judge Huvelle: You could have the FCC's guidance because they have a broader jurisdiction than this court. And they could go first, and it would certainly be very persuasive, if not, according to you, collateral estoppel [a legal basis to avoid trying the same issues twice] because it's the government. So if you wanted the FCC, you win the whole nine yards, whereas here you don't make nine yards no matter what. I'm just one person along the way that you would like to have a decision to use. I agree.
AT&T's counsel: Not to use, to have our day in court.
AT&T's "self-made" problem?
AT&T's counsel: Your Honor, all that's happened with the FCC --
Judge Huvelle: I know. I know what's happened.
AT&T's counsel: -- is strategy for how to gain approval.
Judge Huvelle: I know. But don't you understand from those of us who are not one of the parties, that this "strategy" has a slight aura of using -- I think is the word that you used -- the court to some extent, and the third parties and the Justice Department?
Judge Huvelle: Your problem is also self-made with the FCC.
AT&T's counsel: No, Your Honor, we don't think it's self-made because we have to get this trial done. Forget about the FCC for a minute.
Judge Huvelle: That's what you may have done. I'm not doing that. I'm sorry.
'No reason' to keep going
Justice Department attorney Joseph Wayland: ... We filed [our lawsuit] in August thinking that we needed to do so because the FCC might complete its process, and we needed to be ready.
And that's what Section 7 [ an antitrust law] does. It gives us a right to block. We don't have to approve. The court doesn't have to approve. It's simply a blocking statute. We invoke it when we think we need to stop a transaction.
Right now, Your Honor, there's absolutely no reason to invoke it because this transaction cannot close, and they cannot get it closed until they file with the FCC.
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-- David Sarno
Image: AT&T and T-Mobile phones at a RadioShack in Los Angeles. Credit: Danny Moloshok / Reuters