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posted: 8/13/2011 7:00 AM

AT&T sees doubts rise about T-Mobile takeover

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Bloomberg News

AT&T Inc. is working to strengthen its case with U.S. regulators scrutinizing its proposed $39 billion purchase of T-Mobile USA Inc., as a survey of analysts found falling expectations for approval.

In the past month, the Federal Communications Commission has given itself more time to study new data presented by AT&T, while a growing number of U.S. lawmakers have said the deal may reduce competition and raise consumer costs.

Sentiment that the deal would win clearance slipped among 32 polled observers since early July, Stifel Nicolaus & Co. Washington-based analysts Rebecca Arbogast and David Kaut said in a note yesterday. Reasons may include a call to block the deal from Senator Herb Kohl, a Wisconsin Democrat who chairs an antitrust panel, Arbogast and Kaut wrote.

The observers rated their expectation for approval on a scale of 0-to-100 percent, and the average of their answers fell to 49.5 percent in August from 54.7 percent in July, the analysts said. Eight of those who think approval is unlikely deepened their conviction, and six of those who expect approval expressed less certainty. Arbogast and Kaut didn't identify who was polled, calling them a council of "wise men and women."

AT&T spokesman Michael Balmoris said yesterday the company remained confident that it would obtain regulators' approval.

"We have presented a detailed fact-based showing of the enormous benefits of this transaction, including the billions of dollars in badly needed investment, creating many thousands of well-paying jobs that are vitally needed given our weakened economy," Balmoris said in an email.

The FCC and Justice Department are vetting the deal proposed March 20 in a review AT&T executives have said will take about a year. The purchase of Bellevue, Washington-based T- Mobile would combine the second- and fourth-largest carriers to create a new market leader ahead of No. 1 Verizon Wireless.

Asked at an Aug. 9 news conference if the deal were in trouble following Kohl's opposition, FCC Chairman Julius Genachowski said he doesn't comment on pending transactions. The agency is doing "a serious and thorough review," Genachowski said.

The Justice Department's investigation is ongoing, Gina Talamona, a spokeswoman for the agency, said in an email. Neil Grace, an FCC spokesman, declined to comment.

"They're heavily scrutinizing and questioning AT&T's rationale behind the merger," Andrew Lipman, a Washington-based communications lawyer with Bingham McCutchen LLP, said in an interview. "AT&T is continuing to seek to bolster its position."

AT&T in a July 25 filing at the FCC submitted new economic models that it said showed the merger would lower prices and increase service in large metropolitan markets. The models offer "further detailed support" for arguments that the merger will lessen strains on the company's wireless network, lower costs and increase quality, AT&T said in the filing.

"If they thought their initial showing was sufficient, then they wouldn't have done it," Andrew Jay Schwartzman, a merger opponent who is policy director of Media Access Project, a Washington-based law firm, said in an interview.

The FCC on July 21 stopped the clock on its informal 180- day timetable to review the acquisition, and said it would resume counting days once third parties have a chance to comment on AT&T's new submissions.

The California Public Utilities Commission, citing the FCC's stopped clock, yesterday extended to Nov. 10 from Oct. 6 the first possible date for a commission vote on a decision in its review of the deal, the agency said in a ruling from Administrative Law Judge Jessica Hecht posted on its website.

Rene Obermann, chief executive officer of T-Mobile parent Deutsche Telekom AG, said Aug. 4 that he's optimistic the deal will be completed in the first half of 2012.

Dallas-based AT&T dropped 18 cents to $28.26 at 11:04 a.m. today in New York Stock Exchange composite trading.

AT&T competitors including Sprint Nextel Corp. have told regulators the deal would harm competition and consumers.

Dish Network Corp. Chairman Charles Ergen went to the FCC on June 22 to meet with Genachowski and express opposition to the merger, arguing that it would harm competition and potentially discourage the satellite company from entering the market to provide wireless Internet service, according to a filing. Cablevision Systems Corp. on July 28 told regulators the deal would eliminate an important source of retail competition for mobile voice and data, according to a filing.

76 Democrats

Concerns are building among some members of Congress. The legislature, which doesn't play a direct role in deal reviews, oversees the agencies vetting the transaction.

Kohl, who chairs the Senate Judiciary subcommittee on antitrust matters, said in a July 20 letter to Genachowski and Attorney General Eric Holder that the merger would further consolidate an "already highly concentrated market." Senator Al Franken, a Minnesota Democrat, in a July 26 letter said the FCC and Justice Department should reject the merger, which he said would cost "thousands" of jobs and stifle innovation.

AT&T has claimed support from members of Congress, including 76 Democrats who in a June 24 letter called for the merger to be reviewed quickly and thoroughly, and didn't ask regulators to approve the deal.

Representative Lamar Smith, a Texas Republican and chairman of the House Judiciary Committee, in an Aug. 1 letter told regulators the deal has benefits that should be carefully considered, such as extending wireless high-speed Internet service to much of rural America.

"I don't read any of the activities as indicating the deal is in trouble," Larry Downes, a senior adjunct fellow at TechFreedom, a Washington-based policy group, said in an interview. "There is nothing illegal about merging. The burden is on the government not to approve it, not on AT&T."