Tales of the Sausage Factory

Why DoJ’s Win Against H&R Block Is Bad News For AT&T/T-Mo.

The Department of Justice Antitrust Division (DoJ) just won its lawsuit to block H&R Block from acquiring its smaller, “maverick” competitor Tax Act. Even with the actual Order sealed for a month to let parties scrub out the trade secrets, a few important things stand out for why this is good news for DoJ in its lawsuit to block AT&T taking over T-Mo. In sports terms, this is like DoJ having a super strong exhibition season going into the regular season of play. While you still need to play the games to see who wins, anyone facing them ought to be worried.

My major takeaways from what we know so far below . . . .

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Tales of the Sausage Factory

Will Wall St. Put The Kibosh On The AT&T/T-Mo Takeover Before the DoJ Does?

The more I see AT&T frantically spend money like water and call in every political chip it has to try to pressure the Department of Justice to settle its case, the more I become convinced that it will ultimately be the Wall St. financial community that will finally persuade Randal  Stephenson to give up before AT&T gets to trial. Oh, I expect to see more wild gyrations. There’s perpetual whispers that AT&T will find a dance partner in the form of MetroPCS (the current favorite of the rumor mongers) or Leap or U.S. Cellular (one even occasionally hears Sprint, but that doesn’t even pass the laugh test) and they will publicly announce some big proposed settlement so that AT&T’s political friends and its cadre of honest politicians can howl some more for DoJ to settle. Who knows? We have five months until trial, and AT&T seems infinitely capable of making all sorts of political noise.

But the more I look at it, the more convinced I become that the upper management at AT&T and that of T-Mobile’s parent, Deutsche Telekom (DT), have not really thought through just what kind of a settlement they would now have to offer and how radically different it is from what AT&T expected to offer before DoJ brought suit. A settlement now is far, far more expensive than anything AT&T envisioned and quietly vetted with Wall St. analysts back in March. Back then, AT&T expected to divest from 30-50 midsized markets via a divestiture trust (allowing them to sell licenses at profit-maximizing prices over time), some wussy roaming and deployment conditions that could be easily evaded or ignored. Now, AT&T will need to divest enough to create a “T-Mo Lite,” something that can at least pretend to replace the loss of a national carrier. As I explain below, that becomes so expensive and complicated that even if AT&T can find the financing to make it happen, its stock is likely to tank on the mere announcement of such a deal.

Mind you, I am not saying a settlement is desirable or good policy. I continue to believe that AT&T’s take over of T-Mobile is so thoroughly awful as a mater of both antitrust and telecom policy that no conditions or divestitures can save it. But even discounting my opinion on the matter, there are certain practical realities that make a settlement at this point not merely bad policy, but so expensive and complicated to manage that it is effectively impossible.

If I’m right, the only question is how much shareholder money and political capital AT&T spends lobbying for a settlement that can’t be done for financial reasons before enough officers on the AT&T and DT Boards sit down AT&T CEO Randal Stephenson and DT CEO Rene Obermann and explain to them that the time has come to face reality, renegotiate the break up fee to let DT out early, and cut their loses before AT&T stock starts to tank big time.

I demonstrate why below. Warning, as this is a “show your work” thing, it’s kinda long . . .

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Tales of the Sausage Factory

Deutsche Telekom Keeps Messing Up “T-Mo Is Doomed Unless AT&T Buys It” Song By Explaining Who Else Could Buy T-Mo

 Two weeks ago, Deutsche Telekom (DT) Chief Technology Officer Olivier Baujard accidentally spoke truth about T-Mobile to an audience of German investment analysts. After running through the usual company talking points about the effort to sell T-Mobile to AT&T (e.g., it will happen, DoJ is just playing hardball with negotiations, etc.), Baujard said at a public presentation at a Paris broadband conference that: “any rational company had a Plan B and that Deutsche Telekom had other opportunities for its U.S. operations should the U.S. Department of Justice succeed in terminating the deal.”

This is vitally important because, after accidentally shooting the “this is the only way to bring 4G to rural America” argument in the foot by accidentally leaking documents proving AT&T could bring 4G to rural America whenever it wants, and T-Mobile killed the ‘this will create jobs’ argument by confirming that it was preparing pink slips for more than 20,000 employees after the acquisition gets approved, the “T-Mobile is a sickly gazelle” argument is about all AT&T and it supporters have left. Unfortunately for AT&T, this is not the first time Deutsche Telekom has screwed up the “sickly gazelle” storyline by revealing inconvenient truths about its other options. And while there is usually a rule in Washington that “we totally ignore what you say to investors when it contradicts your chosen story,” this deal is sufficiently high profile and has sufficient problems that eventually someone may notice if AT&T’s “Sickly Gazelle Chorus” keeps getting thrown off key by Deutsche Telekom’s “We Have Lots of Other Options Counterpoint.”

More below . . . .

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