August 31, 2011 / 10:59 PM / 6 years ago

AT&T economic model failed to sway antitrust chiefs

WASHINGTON (Reuters) - AT&T Inc employed a small army of economists to promote its plan to buy smaller rival T-Mobile but the Justice Department viewed the deal as snuffing out a plucky competitor to the detriment of consumers.

A review of documents filed with the Federal Communications Commission shows the merger parties as recently as last week were trying to sway government officials with more information to back their proposal.

Despite those efforts, the Justice Department went to court on Wednesday to block AT&T’s $39 billion purchase of Deutsche Telekom’s T-Mobile USA.

A July 13 event hosted by the FCC saw teams of economists and other analysts from the merger partners, and chief deal critic Sprint Nextel, lay out their arguments before FCC and Justice Department officials.

Jonathan Orszag, a former economic adviser to President Bill Clinton, and Dennis Carlton, an economics professor at the University of Chicago and a former senior Justice Department official, were among those in attendance for AT&T at the July workshop, according to a filing with the FCC.

Carlton is a senior managing director at the consulting firm AT&T hired to make its pitch to regulators -- Compass Lexecon, a unit of FTI Consulting Inc.

AT&T’s economic model looked at 15 metropolitan areas and concluded through its “merger simulation” that cost and quality benefits of the deal counteract upward pricing pressure.

Compass Lexecon provided AT&T with a deep bench of economists with strong Washington connections.

The team included Nauman Ilias, who conducted econometric analysis on the merger of Comcast and NBC Universal, which the FCC and Justice Department approved earlier this year.

AT&T may have been up against overwhelming odds given the magnitude of the merger. “It certainly was not for AT&T’s lack of hiring lobbyists,” said Bill Allison, editorial director at the Sunlight Foundation, a watchdog group that follows political spending.

The carefully crafted economic model was disparaged by AT&T’s critics who pointed out its many revisions.

“AT&T’s model is beyond repair,” Regina Keeney, counsel for Sprint, said in a letter sent to the FCC last week, pointing to seven AT&T filings and presentations on the economic model.

Sprint deployed its own group of economists from Charles River Associates, a Boston-based consulting firm which counts among its victories the Justice Department’s clearance of the SABMiller-Molson Coors deal.

One of the consultants for Sprint was Steven Salop, a Georgetown University law professor with Charles River who has worked at the Federal Trade Commission and Federal Reserve Board.

As recently as August 19, Carlton and others laid out an updated version of the economic rationale on behalf of AT&T to an audience of FCC and Justice Department representatives.

AT&T on August 25 said it was providing a sixth supplemental response to FCC requests for information. The highly redacted filing does not appear to be directly related to the economic model of the deal.

The FCC said on Wednesday it would not undermine the DOJ’s actions. The agency has never approved a significant takeover that the Justice Department has challenged in court, an FCC official said.

Reporting by Jasmin Melvin; Editing by Tim Dobbyn

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