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How AT&T fumbled its $39 billion bid to acquire T-Mobile

By Cecilia Kang and Jia Lynn Yang,December 09, 2011

View Photo Gallery - Major corporate mergers and acquisitions: Here are a few of the major…

The phone call hit like a one-two punch.

Days before Thanksgiving, AT&T's heavyweight lobbying team was busy setting up meetings with antitrust authorities scrutinizing the company’s $39 billion acquisition of T-Mobile.

Julius Genachowski, chairman of the Federal Communications Commission, was on the line for AT&T’s chief executive, Randall Stephenson, and its chief of lobbying, James Cicconi. In a few hours, Genachowski said, he would announce his opposition to the deal. AT&T was stunned.

In a city overrun with lobbyists and corporate interests, AT&T is king of the heap — the bare-knuckled brawler that spares no energy or expense to win any fight. Since 1998, the company has given more money in campaign contributions than any other firm in corporate America. It’s also one of the top 10 corporate spenders on lobbying, according to the Center for Responsive Politics.

And it gets results. In the past 15 years, AT&T has successfully acquired a dozen firms and regularly wins its regulatory battles on Capitol Hill and at the FCC.

With that record, the company was confident it could push through the T-Mobile deal. AT&T, which has been hit with complaints from customers about dropped calls, wanted to improve its broadband coverage to compete with rival behemoth Verizon. This deal, At&T argued, would allow it to do that. Plus, the climate in Washington seemed right. Months before, officials had okayed another blockbuster deal, the $30 billion joint venture between Comcast and NBC. And surely the administration would be on board, AT&T reasoned. In his State of the Union speech, President Obama had deemed expanding broadband access a national priority.

With the company’s biggest bet in years on the line, AT&T’s government operatives, led by Cicconi, a former staffer for George H.W. Bush, relied on the political playbook that has worked for the company countless times. It hired seven former congressional lawmakers to help lobby for the deal. Besides pouring tens of millions into political advertising, the firm had the support of lawmakers whose campaigns it had funded and third-party groups it supports financially, from the NAACP to the Louisiana Ballooning Foundation.

And in its estimated $40 million ad campaign and discussions with government officials, AT&T latched onto an argument it was sure would win over Washington — jobs — saying the merger would put thousands of Americans to work.

So how did one of Washington’s most feared lobbying operations wind up in a losing battle with regulators?

The old playbook backfired, according to dozens of interviews with government officials, lobbyists and consumer groups.

The letters from third-party groups raised eyebrows at government agencies and on the Hill, where people began wondering why groups with no obvious ties to broadband were writing in. News reports emerged showing that many of the groups had financial ties to AT&T.

Then there were the ads that staff members at the FCC said they couldn’t avoid when they opened a newspaper, fired up their iPads or watched TV — all touting the merger’s ability to put thousands of Americans to work. But who had ever heard of a big company merger creating rather than destroying jobs?

And the Obama administration was pivoting to a new theme that would echo a feeling, embodied by the Occupy Wall Street movement, that corporate power has run amok in this country. On Tuesday, in a speech in Osawatomie, Kan., Obama invoked the legacy of Teddy Roosevelt, the first president to leverage the country’s antitrust laws to bust up monopolies.

Ultimately, the closer antitrust officials looked at the facts of the case, the more it troubled them that two carriers — AT&T and Verizon — could potentially own 80 percent of the country’s wireless market.

In August, the Justice Department sued to block the merger. And last week, there was another blow when the FCC released a damning report concluding that the deal would not only hurt competition but also destroy jobs. The agency’s move to block the merger has made the deal close to impossible, some experts say.

“This has been some of the worst couple weeks of my life,” said Cicconi, whose team now has the job of salvaging the deal in a tougher political atmosphere — in this moment of the Occupiers, when mistrust about Wall Street and big business is running high. What began as an exercise of old-school lobbying muscle might become a lesson in corporate overreach.

A lobbying army

When the companies announced their intentions in March, the size of the blockbuster deal raised immediate questions. But policy experts and Wall Street analysts said that if anyone could succeed, it would be AT&T, one of the most politically powerful companies in the country.