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DoJ targets AT&T: The story behind the story [Updated]

By: Neil Stevens (Diary)  |  August 31st, 2011 at 02:30 PM  | 

RESIZE: AAA

Updated below…

Today it was announced that the Department of Justice will attempt to block AT&T’s acquisition of T-Mobile. The deal is needed for technical and regulatory reasons to allow AT&T to compete in the 4G wireless market with Verizon, Sprint/Clearwire, and with the upcoming competitor LightSquared. So why is the Department of Justice calling it bad for competition?

Enter R. Gerard Salemme. It’s not a well-known name, but it’s been an important one in the Obama administration. It’s also a name that often comes up in the ventures of one Craig McCaw. Craig McCaw is an equal opportunity donor who gives to anyone who looks likely to win, including Gore 2000, Bush 2004, and both sides in 2008.

That $2,300 donation to Obama sure is paying off.

There’s a complicated web here, but I’ll do my best to explain it. R. Gerard Salemme is a man who has moved from one company to another in recent years, co-founding Eagle River, and working at XO, Clearwire, and now ICO Global Communications. What those firms all have in common is that they’re also firms invested in or founded by Craig McCaw, who’s Salemme’s business partner at Eagle River, and has often taken leadership roles in these firms. In particular, McCaw founded Clearwire, which operates a 4G wireless network.

Craig McCaw also took over Nextel, shaped it up, and sold it off to Sprint. Sprint Nextel currently owns a majority of Clearwire.

Where does Obama come in? In 2009, Salemme took time off from his job at Clearwire to join the Barack Obama transition team. One project of his was digital television transition issues, where he promoted the famous delay in the DTV transition. You see, the longer the DTV delay took, the longer it would be before Verizon Wireless could get its hands on the “C Block” of spectrum to aid its own 4G rollout, in order to compete with Clearwire’s network.

So the Obama administration took action, dragging its feet on DTV, in a way that hindered 4G competition. Salemme’s employer stood to benefit. Big surprise!

The time has now come for Clearwire’s 4G competition to be expanded further, as AT&T seeks to get ahold of T-Mobile’s spectrum, to allow it to roll out 4G wireless to over 95% of Americans. So naturally, the Obama DoJ is seeking to stop that from happening.

Ladies and gentlemen, enjoy your Hope and Change in the new Culture of Corruption.

Update: It is suggested to me that the DTV delay ended up being not as bad as portrayed in the above link. I’ll be up front: I wasn’t following regulatory policy back then, so my personal memories of the issue are not particularly useful, and I relied on my research in the writing. Judge for yourself.

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COMMENTS

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  • 45anaconda

    this will definitely lower competition and you can say goodbye to the relatively lower cost offers from sprint if it was OK’d.

  • bk

    According to this article:

    Rejection by regulators would leave AT&T liable to pay Deutsche Telekom $3 billion in cash, to give T-Mobile USA wireless spectrum and to reduce charges for calls into AT&T?s network, a package valued at as much as $7 billion, Deutsche Telekom has said.

    If AT&T needs to flush $3B down the toilet to Germany and reduce income, how many AT&T union workers will get laid off as a result?

  • http://www.hakubi.us/ Neil Stevens

    We didn’t get our dose of Soros talking points today.

  • sonoflalaland

    the reason the DOJ is blocking it is because it leads to reduced competition, giving rise to higher prices as the consumer loses out. Conservatives used to be FOR competition rather than pretending that a $2300 campaign contribution was the reason for government interference (and that the deal should be allowed to proceed). Why do you think ATT is promising to bring back 5500 outsourced jobs (while ignoring the reality that there will be a ton of jobs cut to reduce redundancies post-merger)? Please.

  • http://www.hakubi.us/ Neil Stevens

    Did Public Knowledge send you?

  • http://www.nighttwister.com NightTwister

    Does T-Mobile have enough specturm on their own to go to LTE without AT&T, or does it really require the combination of both companies? If they don’t need what AT&T has, it would seem there’s still the possibility of 4G competition if T-Mobile just continues on without AT&T.

  • acat

    Otherwise, this looks suspiciously like a normal business consolidation.

    Quick fact-check.

    T-Mobile is owned by the German phone company, T-Mobile profits go overseas. AT&T is an American company. This purchase keeps more profits here.

    AT&T cannot compete without buying *somebody’s* frequencies – they do not have enough for the new higher bandwidth gear.

    LightSquared have done a deal with Sprint. Sprint brings their fibre network to the table, LightSquared brings G4 using frequency space they own, specifically some near GPS frequencies, and some satellite uplink frequencies from the failed TerreStar business. Just because they’re new doesn’t mean they’re not serious competition.

    The result is AT&T must either buy someone who has frequencies, or prepare to get bought once their inability to grow becomes obvious in the marketplace…

    Mew

  • acat

    The T-Mobile business model seems to have been on cruise control for a while now, just sending any profits back to Germany.

    Mew

  • snowshooze

    Any reason DOJ should be playing in this sandbox?
    It seems they are getting out of their realm. They are everywhere…
    And it seems that everything they do is just plain nuts.
    or is it just me thinking that they are the SS for Obama?

  • http://www.nighttwister.com NightTwister

    But if the deal is stopped, I doubt they want to just walk away from it either. They could always move into 4G and find a buyer that isn’t an existing player.

  • acat

    Lots and lots of money. I forget where I saw the number but I believe it was 3 billion.

    Enough to make the sale of AT&T to Verizon or Sprint more likely than the sale of T-Mobile…

    Mew

  • http://www.nighttwister.com NightTwister

    IIRC, they would own 40% of the new merged company. I think they’d still have a vested interest in seeing business growth.

  • http://wadingacross.wordpress.com logus

    but I’m speaking as a T-Mobile customer.

    I signed up for T-Mobile because I cannot stand AT&T – I’m stuck with them as my internet provider for the next two years now too. Lo and behold, less than a year after joining T-Mobile, I find out AT&T wants to buy T-Mobile.

    If ATT buys TM, it’s still another year before my contract runs out. Years ago I had Cingular, and then ATT bought them out… eventually I had enough.

    Now I’ll probably have to figure out if I want Sprint or Verizon… and eat more cost.

  • acat

    which is their comfort zone. There’s a mindset difference at play… they want investments in big, stable, telephone-related businesses. (thus, T-Mobile .. on autopilot) I do not see them getting into the day-to-day of running the new company.

    Mew

  • acat

    Pay-to-play with a broad choice of hardware, no contracts, no “am I going to go over my minutes/megabytes/whatever?” .. buy more minutes online, and since my usage fluctuates quite a bit, it makes more sense to me.

    YMMV, of course.

    Mew

  • http://www.hakubi.us/ Neil Stevens

    But I don’t think they can do the backhaul, and they’re just not making it in the market. T-Mobile just isn’t growing.

  • http://www.hakubi.us/ Neil Stevens

    It’s highly competitive at the voice level and at the lower data levels.

    The national high end 4G data market right now has two major networks: Verizon and Clearwire/Sprint Nextel. AT&T needs T-Mobile to become a third, and LightSquared just needs the FCC and GPS makers out of the way to be a fourth, and then we’ll be sitting pretty.

  • http://www.hakubi.us/ Neil Stevens

    So I wouldn’t day they’re Obama’s SS. Holder is clearly a radical though.

  • http://www.nighttwister.com NightTwister

    Hard to say. They certainly have a loyal following from the customers that they do have. Coverage is the worst though, so for some that’s a deal breaker.

  • acat

    and a partner, like LightSquared just did with Sprint.

    Not enough profit in the plan to fund the investment, although .. if the AT&T buy-out gets killed, that 3 billion payoff ought to help…. (IIRC the Sprint/LightSquared deal was around 9 billion… The Register (http://www.theregister.co.uk) has been covering this from a tech angle.

    Mew

  • http://www.hakubi.us/ Neil Stevens

    If this doesn’t work they’re not going out of business. So that hypothetical really doesn’t matter.

    It’d be like saying T-Mobile would do better if Verizon was gone.

  • acat

    most mature business models end up with a handful of competitors, each with a niche, and with a good deal of overlap.

    I almost wasted four paragraphs citing examples for bulk disk storage, automobiles, television networks, and home appliances, but I realized I don’t need to – I can just write this paragraph instead and leave it as an exercise for the reader.

    The point is, there are 2 existing 4g providers right now – and 2 in the wings. (the interesting thing is that LightSquared is also tied to Sprint .. as is Nextel…)

    AT&T would be able to use its’ existing landline business to become the fourth, but .. they need a partner. If they can’t get T-Mobile, they may either get creative (like LightSquared) and buy spectrum someone else isn’t effectively using (wonder if Sirius/XM have any leftovers, or if anything is left of the Iridium system…) or their days are numbered as they will not be able to compete in the more lucrative upper end of the market.

    Mew

  • acat

    Verizon is still in the local phone business, after all.

    AT&T won’t go bankrupt, but they’ll take a big loss ($3BN) and the loss of corporate direction. If they can’t pick up some spectrum elsewhere, they may as well exit the business and sell their customers to someone else.

    Perhaps the deal is just structured backwards. Following the cash infusion, with AT&T’s growth quite limited, what’s to stop T-Mobile from offering to acquire the old Cingular business line that became AT&T Wireless, and contracting with AT&T (landlines) for the backbones they need…

    Mew

  • http://www.hakubi.us/ Neil Stevens

    Verizon Wireless isn’t the same company. The Verizon you’re thinking of owns a lot of the wireless firm, but they’re separate. Notably, the Wireless firm is non-union.

  • http://www.hakubi.us/ Neil Stevens

    And LightSquared isn’t “tied” to Sprint so much as a vendor to Sprint.

  • harshlightoftruth

    100% agree with you here. This merger is good for AT&T and their stockholders and nobody else.

  • http://www.hakubi.us/ Neil Stevens

    The merger would increase competition.

    That’s why Sprint Nextel opposes it.

    If the deal would decrease competition, then Sprint Nextel would benefit from the deal, being set to collect rents from a non-competitive oligopoly formation.

    But the deal will increase competition, meaning Sprint Nextel’s margins will be reduced.

    Costs will lower for Americans.

    This deal is only bad for socialists who want greater excuse for state control of the media.

  • runner12

    But did not Sprint and Nextel merge? Why all of the hub-bub with the AT&T and the T-Mobile merger?

    The merger seems like a win-win for consumers.

  • http://www.hakubi.us/ Neil Stevens

    When Sprint and Nextel merged, prices went down. Competition got better.

    The same will happen when AT&T and T-Mobile get together.

  • acat

    is that there will still be enough profit in AT&T Wireless (formerly Cingulair, something else before that…) to keep the lights on, but .. if they can’t get bandwidth, their future is limited. They would, at some future point, be sold off as they would not be able to grow.

    Mew

  • libertyatstake

    aka … Crony Barryism.

    d(^_^)b
    http://libertyatstake.blogspot.com/
    “Because the Only Good Progressive is a Failed Progressive”

  • harshlightoftruth

    Four competitors for my dollar becomes three and that increases competition?

    Look at this from Verizon’s position. What are they going to do when AT&T leapfrogs them to become number one? Oh, look over there. Sprint, already using our CDMA tech, is in even deeper trouble now. Let’s acquire them to “increase competition” and in the process get back ahead of AT&T. Four carriers becomes two and acquisitions aren’t free. Who’s going to pay for that? The American consumer.

    And non-competitive oligopoly? Where is that coming from? Sprint opposes this because they see they’re next in line to get snuffed out.

    How much do you have invested in AT&T, Neil?

  • http://www.hakubi.us/ Neil Stevens

    It’s still a fascist attempt to use the state to pick winners and losers in industry, to block the deal. Which is why I, being one who favors smaller government, oppose Obama on this.

  • edintexas

    Besides, he’s probably a Sprint employee.

  • popster

    is against, judging by their track record, might be good for the Country. How can anything they say or do bring credibility with it?

  • mkj350

    to make himself dictator before he’s voted out. Boeing, Gibson Guitars, AT & T, GunWalker and there is a book full of others. It’s getting pretty scarey. I don’t know if we survive another year and a half of this guy!!! Problem is, he’s doing all of this through his appointed minions, including the Dept of Justice, the NLRB, EPA – not through the Congress. Look at his track record and be afraid – be very afraid.

  • izoneguy

    That is why the Republicans in the house need to throw up every obstacle to Obama. The year 0f 2012 needs to be a blocking year.

  • acat

    I indicated any support for the Obama administrations’ ham-fisted approach to this.

    There is a role for government in preventing customer abuse (Slamming comes to mind… and holding numbers hostage) but .. the cell phone market is mature enough that the existing regulation seems to be about right.

    If the AT&T/T-Mobile merger doesn’t happen, AT&T is still growth-limited and will likely end up on autopilot, and lighter by 3 billion dollars. T-Mobile, which has been on autopilot for years, will end up with a big wad of cash to spend.

    There’s no good reason for Obama to block the AT&T/T-Mobile merger, so I’m looking for a bad reason .. like who at AT&T or T-Mobile donated to the GOP.

    Mew

  • acat

    I don’t follow this as closely as you, and haven’t been a customer of Sprint or Nextel in .. well, ever. I do know some of the history of Sprint – their use of right-of-ways along the Southern Pacific Railway (SPR) for the build-out of their fibre network was business genius – but …

    I would point out, though, that LightSquared is more than “just a vendor” to Sprint. This article at The Register makes it quite clear that, instead, LightSquared is a customer of Sprint (cash moves from LightSquared to Sprint) and that a long-term relationship (15 years) is what they have in mind.

    That said, you’ll forgive me for wondering just what the plan for the Nextel component of Sprint is here…

    Mew

  • http://www.hakubi.us/ Neil Stevens

    So I shouldn’t make fun of you.

    But seriously, read books sometime. And no, your high school econ class doesn’t count.

  • jericho777

    Once again the DOJ going beyond the line of legality, anb where the heck are the Republicans saying enough, enough , enough of this already. Gibson. Att and Moble, what right do they have that allows them to dictate what businesses do? The Republicans better start giving us results from their pushing against this or I’ll hold them guilty of this as well with my vote!

  • travis690

    Why does the Dept. of Injustice believe that competition in 4G services would be reduced with this merger? After all, that’s what is the real issue here. McCaw would be among the biggest beneficiaries to the torpedoing of this merger. If ever the motives of the knaves that would attempt to derail business combinations were made part of such due-diligence investigations, the world would be a better place.

    The fact that there are a bunch of corruptocrats that can torpedo such a business combination is all the proof you need that we have entered into a Fascist state, one which may not be repealable.

    It is the blocking of the merger that is anti-competitive, since it prevents a company from offering competitive services to the current leader in 4G services; this is the real reason we are headed down the dirt road of disinformation.

  • http://www.hakubi.us/ Neil Stevens

    ..

  • harshlightoftruth

    Does it ever occur to you that your bluster and name calling does more to undermine your argument than support it?

    You can’t even put together a decent ad hominem attack. Putting down my credentials (high school level understanding of economics) only makes sense if you can point to your superior pedigree, but you don’t do that. Likely you can’t do that. A well-read IT guy is about as common as a white buffalo. “Read books sometime.” What is that? What books should I be reading that can convince me that fewer competitors for my dollar means increased competition for my dollar? If mergers increase competition, you ought to be able to point to several past examples to support that assertion. I’d love to see what you have in that department.

    Never mind. Thread is dead, not that you could answer me anyway.

  • Bill S

    The fact that T-Mobile is another company doesn’t really make them an effective competitor. It’s quite possible (likely?) that the combination of AT&T and T-Mobile will, combined, be a more effective competitive force to Verizon and Sprint than the two were separately.

    Furthermore, there are MANY other carriers out there (Trac, U.S. Cellular, to name a couple) that bring competition to the mobile market. For years I was a U.S. Cellular customer, but I decided that AT&T was a better choice. Since the change, I have considered switching back – and I will still have that option after the merger.

    It isn’t just the number of competitors – it’s also the quality of the competition. This merger will make the combined AT&T/T-Mobile much more effective in competing against Sprint and Verizon.

  • http://www.hakubi.us/ Neil Stevens

    I don’t actually answer dumb socialist shills like you. I mock you, and if you give me any lip, I ban you.

    But I don’t give your tired, discredited ideas of corporatism any serious consideration.