Could The California PUC Spoil The AT&T/T-Mobile Union?

A five-person panel in California could be the wrench in the works of AT&T’s bid for T-Mobile.

SAN FRANCISCO—A five-person panel in California could be the wrench in the works of AT&T’s bid for T-Mobile.

In one scenario, if federal authorities approve the deal but California’s Public Utilities Commission votes against it, AT&T could obtain T-Mobile’s spectrum in California but not its customers, cell towers, retail space and other property in the Golden State.

Last week, the commission extended the timeline of its review by one month and came out with a list of issues AT&T and other parties need to address.

"AT&T should recognize California could be more than just a bump on the road to approval,” said James Bradford Ramsay, general counsel at the National Association of Regulatory Utility Commissioners.

The FCC and the U.S. Department of Justice have chief authority to approve or reject the bid, but the California commission has asserted itself into the process, arguing that it has authority based in state law. It also argues that it must do more than send its concerns to the FCC because T-Mobile has a sizable chunk — about 12 percent — of California’s market, which mirrors its nationwide market share.

Whether a single commission in one state can disrupt the progress of the $39 billion purchase is an open question.

"Federal law makes clear the FCC, not state commissions, has authority over spectrum licenses,” said Lane Kasselman, a spokesman for AT&T. “We look forward to working with the CPUC to complete this process in a timely manner."

Others say the commission has wide authority if it chooses to use it. “If the commission exercises its jurisdiction over the merger, the deal can’t go through without California’s approval,” said Steven Weissman, a former administrative law judge with the California commission and now a law professor at the University of California, Berkeley. “That means California regulators could permit the arrangement, or stop it in its tracks.”

Congressional leaders, attorneys general, mayors, unions and community groups have lined up on each side of the debate over the deal. Proponents, such as AT&T itself, argue that the acquisition is critical for the company to be able to meet the growing broadband demands of its customers.

Opponents say the consolidation of the market will hurt competition and hit the wallets of low income customers who will likely pay more.

Three state utilities commissions — West Virginia, Louisiana and Arizona — have decided not to object to the deal. Hawaii is still reviewing. Meanwhile, 11 state attorneys general have urged for federal approval of the deal, but a number of others are conducting their own reviews.

In California, the utilities commission voted for a full review. In its “Order Instigating Investigation,” the commission notes that the 1993 congressional budget act prohibited states from regulating the entry or rates by mobile services, but the commission cited state court rulings backing up the commission’s ability to review the transfer of ownership of utilities, including mobile services.

Since, it has held four hearings where public speakers argued for and against the deal. It has also held three all-day workshops with panelists discussing everything from the deal’s potential impact on the digital divide to technical issues about interoperability.

On Thursday, an administrative law judge ruled that parties in the proceeding had to give the commission more data. The ruling provided a window into the issues the commission’s staff appears to be most concerned about, specifically how it may impose conditions on a post-deal AT&T that would protect or foster competition related to price, spectrum, roaming and competitors’ access to wire lines.

The agency “clearly laid out potential areas where there could be severe problems with this merger in California,” said Samuel Kang, general counsel at the Greenlining Institute, a Berkeley public policy think tank and policy organization. “This is a starting point where AT&T working with consumers can start addressing and mitigating these potential harms.”

Whether the commission can or even would consider stopping the deal is a debate even inside the state agency, where staff members say such talk is premature. Whatever authority the commission has to insist on conditions will be “around the edges,” one staffer said.

Others say the state agency could approve the deal but with conditions, perhaps in areas such as service and coverage.

A third option is that the commission, despite its hearings and wide-ranging data request, simply gives its recommendations to the FCC.

“It is way too early to tell what the PUC will do,”said Bill Nusbaum, managing attorney at The Utility Reform Network, a consumer advocacy organization.

As it proceeds, the California commission can be a strong negotiator, holding out its approval for the deal in order to gain concessions, observers say.

“California can refuse to approve the deal unless certain conditions are met,” Weissman said. “This would force AT&T and T-Mobile to alter the agreement in order to move ahead. Even though California’s authority doesn’t reach beyond its borders, the companies can’t merge one way in California, and another way everywhere else. In effect, a roadblock in California stops traffic on a national level.”

While the commission has stopped deals before, voting to stop AT&T’s bid would likely result in litigation over the issue of whether there is federal pre-emption, observers say.

The California process has put a spotlight on Catherine Sandoval, a public utilities commissioner, law professor and former FCC staffer, who is leading the inquiry. She is among three appointed — but not confirmed — commissioners and the most visible since pushing for a full inquiry into the AT&T deal. To take on the deal as an unconfirmed commissioner “is a tremendous leap of faith,” one consumer advocate said.

Sandoval may not be viewed as a friend of incumbent carriers, but consumer groups say her approach is not as a flamethrower but as a convener of all parties to discuss the issues and come up with solutions.

A fellow commissioner, who did not support holding the proceedings, recently paid Sandoval homage before one workshop on the deal. “I believe she is bringing up issues that are going to be very important to the people of California as we grapple with the issue of broadband and communication and its impact on many communities, particularly those communities who historically have been on the wrong side of the digital divide,” Commissioner Timothy Alan Simon said.