Will the events of this week hurt AT&T’s bid for T-Mobile? Possibly, but not enough to stop the deal, some analysts say.
They say a call by Senator Herb Kohl (D-Wisc.) to block the deal and a delay in the Federal Communication’s review will embolden critics and put greater focus on how the deal will affect competition in the wireless industry and ultimately change monthly bills for consumers.
But in the end, that may just mean more conditions on the $39 billion merger, some experts say.
“The ebbs and flows of merger reviews create moments of pause that sometimes imply greater uncertainty and risk than what actually exist,” said Jeffrey Silva, an analyst at Medley Global Advisors in a research note.“This appears to be one of those moments, though the warning signs should not be ignored.”
Silva and other industry analysts say there are factors that can affect the final decision by federal regulators beyond the analyses being done within Justice and the FCC.
Among them: Who will replace Christine Varney as head of Justice’s antitrust division and can AT&T or merger critics influence who is nominated? How much weight with regulators put on state attorney generals objections to the merger and hearings by California’s Public Utilities Commission?
Importantly, the merger comes amid a presidential election campaign. Even though it would concentrate the wireless market — putting 80 percent of all cell phone contracts into the hands of two carriers — AT&T and T-Mobile promise to create jobs and extend wireless connections to rural areas faster than previously planned.
Analysts such as Craig Moffett at Sanford C. Bernstein say they still believe the deal will be approved, even as the administration searches for a new head of antitrust at Justice.
AT&T is quick to point to public officials who support its deal and has a union saying the merger will create new jobs. More than 70 Democratic lawmakers and 26 governors have expressed support of the merger.
But this week, things got a little harder for AT&T, analysts say.
Kohl’s letter, along with a separate letter by three key Democratic House lawmakers saying the deal was a step “backward,” carry some influence among antitrust regulators, said Rebecca Arbogast, an analyst at Stifel Nicolaus.
Kohl “could be something of a barometer for mainstream Democratic antitrust thinking, and if nothing else, provide some political cover for opponents in the face of the strong AT&T lobbying campaign,” Arbogast said.
The Senate head of antitrust issues expressed several concerns about concentration in the market and possible harm to consumers.
Regulators may place stronger conditions on their approval — such as the divestiture of spectrum and other assets. Analysts question who will be in a position to buy those assets, however.
Critics of the proposal say the tide may have turned against AT&T and T-Mobile.
Gigi Sohn, president of public interest group Public Knowledge, said the FCC’s decision indicates that AT&T is struggling to convince regulators to approve the deal and has come up with new arguments.
The FCC said it paused the review because of a “new model” that AT&T relies on for winning approval from the agency. The wireless giant will reveal the new model on July 25. But AT&T downplayed the significance of the event.
The company said the material it presents won’t show a shift in economic or any other analysis but will be additional information to supplement previous comments.