WASHINGTON -(Dow Jones)- AT&T agreed Tuesday to U.S. Justice Department antitrust authorities' requirements that the company sell assets in seven markets in order to win approval for its acquisition of Dobson Communications, an AT&T spokeswoman said.
In a statement, the Justice Department said that, unless AT&T sold assets in the rural markets in five states where it and Dobson dominated the cellular market, competition would be harmed.
In three of these markets, AT&T and Dobson are the primary competitors and, in two others, AT&T has a substantial minority interest in a rival to Dobson. In the final two markets, a licensee of Cellular One, Dobson's retail brand, competes with AT&T.
The markets are in Kentucky, Missouri, Oklahoma, Pennsylvania and Texas.
"The required divestitures will preserve competition for residents in rural areas in Kentucky, Oklahoma, Missouri, Pennsylvania and Texas and ensure that these consumers continue to enjoy the benefits of competition, such as lower prices, and higher quality," said Thomas O. Barnett, assistant attorney general in charge of the Justice Department's antitrust division.
Justice department officials filed a complaint in U.S. District Court for Washington to block the merger Tuesday. But as long as AT&T meets the conditions, the deal will receive approval from the Justice Department.
"This was an important step in the approval process for the Dobson merger. We're hopeful this process will continue to progress quickly," said AT&T spokeswoman McCall Butler.
AT&T's $2.8 billion acquisition of Dobson still requires the green light from the Federal Communications Commission but, according to FCC officials, a proposal has been released by Chairman Kevin Martin's office that would approve the deal.
In order to win FCC approval, AT&T will have to agree to cap the amount of federal subsidies used to offset the cost of deploying and maintaining cellular service in rural areas.
According to the not-for-profit group that administers the Universal Service Fund, AT&T received about $82 million from the fund between January and September this year while Dobson, which operates under the retail name Cellular One, got around $32 million in the same period.
The same condition was applied last week by the FCC to the $27.5 billion takeover of Alltel by Atlantis Holdings LLC, a holding company for private-equity funds TPG Capital and Goldman Sachs Capital Partners.
The FCC approved that sale Friday.
Alltel has been the largest recipient of funds from the Universal Service through September this year.
AT&T is buying Dobson both to extend the geographic footprint of its cellular service and to add more wireless customers. Dobson has 1.6 million wireless customers in 17 states.
San Antonio-based AT&T already has the largest number of cellular subscribers. Last week, it reported that it had 65.7 million wireless customers as of the end of the third quarter.
Earlier this week, Verizon Communications said its wireless arm had 63.7 million subscribers as of the end of the third quarter.
Shortly after AT&T announced its proposed acquisition of Dobson in July, Verizon Wireless followed suit with its own deal, saying it would pay $2.67 billion for Rural Cellular Corp. (RCCC) in a deal widely seen as an attempt to keep pace with its larger rival.
That deal hasn't been cleared by either the Department of Justice or the FCC. It is likely Verizon will have to comply with the same conditions as Alltel and AT&T in order to win the FCC's approval.
"This is a cheaper way for these companies to push into the rural cellular markets then it would be for them to bid for licenses in the upcoming spectrum auction," said Jessica Zufolo, an analyst at Medley Advisors.
Zufolo was referring to a sale of 62 megahertz of radio spectrum by the FCC to the commercial-wireless industry in January. Nearly half of that spectrum is going to be sold off in small licenses covering mainly rural parts of the country.
AT&T shares were recently trading down 31 cents to $41.43 while Dobson shares were up 1 cent to $12.93.
-By Corey Boles, Dow Jones Newswires; 202-9862-6637; corey.boles@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 30th October 2007
Posted to: www.cellular-news.com/story/27064.php