Can This Merger Be Saved? ATT Retools Lobbying and Marketing To Salvage T-Mobile Deal

Plan B. That is where ATT is in its effort to rescue the T-Mobile deal after its initial marketing effort to extol the plans' virtues was met with hoots of derision.

Providing jobs? Uh, regulators, consumers and journalists may not be that smart, but since when did a major corporate merger ever add jobs? Such mega-combinations are almost always sold to investors on the strength of 'synergies' realized through cost savings. And in big corporate confabs, cost savings are measured in thousands of people ushered out the door.

The problem for ATT is that Plan B probably centers on convincing a now deeply skeptical public that this will result in cost-savings to mobile phone users. The economics of scale of will be trotted out to explain why rates and fees will be adjusted downward. But again, observers will note that concentration and elimination of competition has rarely delivered much benefit to customers. Rising rates seem far more likely and in a recessionary election year, even pro-business politicians are leery of cheering for that.

Anyone got a Plan C? JL

Shirley Brady reports in Brand Channel:

AT&T is not used to not getting its way, as Politico observes today. Having spent millions and employing an army of lobbyists and publicists to make its case for acquiring T-Mobile's US operations, the telecom giant was stunned when the US Department of Justice went to court yesterday to block the deal.

Still, it stands a fighting chance to salvage its proposed merger with T-Mobile USA and convince the DOJ that the merger is not anticompetitive, but in fact offers real merits for consumers.
Whiile the company's chairman and CEO Randall Stephenson is (according to Bloomberg News) gearing up for a court fight and ready to make concessions to save the T-Mobile deal, Hal Singer, managing director of Navigant Economics, told Bloomberg TV that AT&T has a "standing chance" to convince the Department of Justice that the merger will benefit mobile customers.

One tactical error may have been emphasizing saving jobs instead of savings to customers, which Fortune's Scott Woolley feels is still AT&T's best argument for swaying the powers that be in Washington. Woolley writes:

AT&T advertised the benefits of the merger in high-minded, almost patriotic terms. The merger will create jobs, the company vowed, and it will bring broadband to rural America. Even yesterday, after the Justice Department sued to block the deal, AT&T's retort focused on jobs and network upgrades. It ignored the classic economic argument that consolidation would make the industry dramatically more efficient, slashing the cost of providing wireless service to its customers. It seems a peculiar omission, since over the last 30 years the cellular industry has repeatedly demonstrated just that link: the more users you put on a cellular network, the less it costs to serve each one. It's practically an iron law of mobile communications business: Bigger means cheaper."

The emphasis on jobs over pricing benefits was understandable, he adds:

It's easy to see how AT&T got in this pickle. Back when the company first announced the $39 billion takeover, its biggest stumbling block appeared to be regulators at the FCC. So, perhaps not surprisingly, the company tailored its arguments to appeal to the political climate, promising to increase spending and create jobs. This week the company even vowed to bring 5,000 call center jobs back to the U.S. if the merger goes through.

Now a federal court date is AT&T's biggest problem and while promises to hire call center workers won't sway a federal judge, blunt arguments centering around economic efficiency might. Courts must balance the rights of consumers and corporations according to a "rule of reason" in which "anticompetitive consequences of a challenged practice are weighed against the business justifications upon which it is predicated."

Demonstrating efficiencies and benefits to consumers won't be easy, University of Baltimore law professor Robert Lande (who opposes the merger) told Reuters. "Very few efficiency defenses work," said Lande. "They make promises that these efficiencies could happen, but showing that in court is very difficult."

As Woolley notes, creating savings for consumers as a result of the merger was not played up in how AT&T responded to the US Department of Justice lawsuit to block its merger with T-Mobile USA (with a statement by Wayne Watts, Senior EVP and General Counsel, below). Indeed, Reuters hears that AT&T's proposed settlement to salvage its deal at the Justice Dept. "is expected to include pledges to maintain T-Mobile's relatively cheap mobile subscription plans, and asset sales.

AT&T's initial statement:

We are surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated.

We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.

At the end of the day, we believe facts will guide any final decision and the facts are clear. This merger will:

• Help solve our nation’s spectrum exhaust situation and improve wireless service for millions.

• Allow AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97% of the population;

• Result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most.