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FCC chairman comes out against AT&T's T-Mobile buy

The Federal Communications Commission doesn't think that AT&T's proposed merger will be in the public interest and is calling for an administrative hearing.

The chairman of the Federal Communications Commission doesn't believe that AT&T's proposed $39 billion deal to acquire T-Mobile USA is in the public interest. And he's asking the other four commissioners to approve an administrative hearing, in which AT&T would have to prove otherwise.

FCC Chairman Julius Genachowski
FCC Chairman Julius Genachowski

The Wall Street Journal first reported on Tuesday that Chairman Julius Genachowski was considering such action.

The move by the chairman would put yet another hurdle in the way of the merger, which is already being challenged by the U.S. Department of Justice. The DOJ has filed a lawsuit to block the merger.

In a briefing with reporters, FCC officials said that their evaluation of the deal found that the merger between AT&T and T-Mobile would create an "unprecedented" level of concentration in the wireless market. Officials went on to say that it was impossible to see how the deal could serve the public interest.

The FCC chairman has filed an order asking the other four FCC commissioners to vote to have an administrative law judge hear the case. In this proceeding, the FCC would present the findings from its analysis. And AT&T would be given an opportunity to prove its case. The burden would be on AT&T to prove that the merger with T-Mobile is in the public interest.

FCC officials did not share many specifics from their report. But officials did say that their analysis shows that in 99 of the top 100 major U.S. markets, AT&T and T-Mobile are heavily concentrated in terms of customers. The only market where the two carriers do not exceed concentration limits is in Omaha, Neb., where T-Mobile doesn't operate its network. The agency used the Herfindahl-Hirschman Index to assess market concentration.

In response to the chairman's filing, AT&T continued to defend the merger based upon the argument that with T-Mobile, AT&T will be able to expand its 4G LTE faster and will also create jobs.

"The FCC's action today is disappointing," Larry Solomon, senior vice president of corporate communications at AT&T, said in a statement. "It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the US economy desperately needs both."

But FCC officials said that the public record doesn't reflect AT&T's argument that the merger will lead to wider scale 4G LTE deployment nor would it result in the creation of domestic jobs. Instead, the agency said its analysis shows that there could be massive job loss as a result of the merger.

If approved by the FCC commissioners, the administrative hearing is not expected to start until after the Justice Department's trial against AT&T to block the merger, an official said. The DOJ trial is expected to start in February. If AT&T is able to strike a deal with the Justice Department to settle its lawsuit, the wireless carrier will have to refile its merger proposal with the FCC, which would then evaluate the new agreement.

It's rare for the FCC to seek an administrative hearing on merger deals, such as this one. An official said the last time the agency called for such a hearing was in 2002 when it reviewed the merger between EchoStar and DirecTV. The companies eventually abandoned the deal.

Updated 1:50 p.m. PT: This story has been updated with additional information from an FCC conference call and a comment from AT&T.