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AT&T’s $1.95 Billion Sale of its Telecommunications Assets in Puerto Rico and the Virgin Islands May be Only the Tip of the Iceberg

Posted  December 7, 2020

Last month the U.S. Department of Justice entered into a consent judgment approving AT&T’s sale of its wireless and wireline operations in Puerto Rico and the Virgin Islands to Liberty Latin America Ltd. for $1.95 billion.  Coming on the heels of several other divestitures by AT&T in the past few months, this transaction—while sizable—may be dwarfed by additional anticipated sales by the media and telecommunications conglomerate in the upcoming year.

What does this mean for consumers, and what might AT&T sell next?

AT&T’s recent divestitures bring back memories of the break-up of AT&T’s “Bell System” of telephone companies into seven regional telephone companies by consent decree in the seminal antitrust case United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982).  Consolidation of the “Baby Bells” over the following years—including a Baby Bell’s acquisition of Ma Bell—resulted in a robust AT&T Inc. that, by 2006, had reunited three Baby Bells as well as the original AT&T Corporation.  Although AT&T grew significantly through this round of mergers, much of AT&T’s current size is the result of growth that occurred over the last decade through another round of high-profile mergers and acquisitions, including that of Time Warner Cable in 2018.

The Time Warner deal, however, left AT&T with debt totaling $180 billion, which has led the reborn behemoth to begin unloading its assets again, this time to regain fiscal balance and strength.  While pressure to restructure has come from investors, the need is manifest—AT&T is still saddled with over $150 billion in debt, it’s shares are down over 25% this year, and it was recently rated “underweight” by analysts.

The Justice Department originally challenged Liberty’s acquisition of AT&T’s wireless and wireline operations in Puerto Rico and the Virgin Islands as anticompetitive.  These U.S. territories face unique challenges in maintaining their telecommunications and media services, including damage to infrastructure from storms and hurricanes.  These challenges are in addition to the barriers to entry found in many remote markets for fiber-optic network services.

As noted in the Justice Department complaint, enterprise customers often seek a network product that can provide connectivity in multiple locations, and in many areas in Puerto Rico AT&T and Liberty are the only two, or two out of the only three, providers of fiber-optic network services that own “last-mile” connections.  Ownership of these direct fiber connections to a building, or connections close enough to connect to a building economically, is key because the cost of constructing a fiber-optic network is substantial.

Since the cost of entering the market is high, AT&T’s sale had the potential of making Liberty the only available provider in multiple locations, likely resulting in higher prices and lower quality services.  Liberty agreed to divest part of its assets in Puerto Rico to WorldNet Telecommunications Inc., a local telecommunications company, in order to ensure continued competition.

Notably, AT&T’s markets include numerous countries in Latin America and the Caribbean, including Mexico and Brazil.  AT&T’s shedding and acquiring of assets in those nations will necessarily involve foreign corporations.  Even this domestic transaction in Puerto Rico and the U.S. Virgin Islands involved a foreign corporation—Liberty Latin America LTD is a Bermuda corporation and spinoff of international telecommunications titan Liberty Global PLC.

Consumers in the United States may find that some such transactions could cause them to pay higher prices or otherwise adversely affect them.  American consumers seeking antitrust remedies for conduct in a foreign country can bring a claim under federal law, even if the claim is based on foreign conduct by a foreign corporation, so long as they can show certain elements, including harm to American consumers or commerce.  For example in United States v. Nippon Paper Indus. Co., 109 F.3d 1 (1st Cir. 1997), the First Circuit Court of Appeals held that the district court had erred in dismissing a criminal antitrust prosecution based on wholly extraterritorial conduct.  As that appellate court noted, the United State Supreme Court has “deemed it ‘well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.’”  109 F.3d at 4 (quoting Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 (1993)).  Although U.S. federal and state antitrust enforcers focus on harm to the American consumer, since companies work across borders and countries have divergent laws governing competition, remedies must necessarily consider the global marketplace—especially in the high-tech telecommunications and media industries.

Multinationals like AT&T also keep global markets in mind in developing their business strategies.  Besides seeking to reduce debt, AT&T seeks to position itself to lead the next generation of media and telecommunications services in the United States and abroad.  With the company focusing on wireless, fiber-optic networks and streaming subscriber services (while phasing out DSL), other possible sales include DirectTV, AT&T Now, U-Verse, Vrio, AT&T Mexico, Xandr, and Crunchyroll.  On the other hand, predicted sales may not materialize.  For example the sale of Warner Brothers is no longer a priority.  Those transactions that do move forward will likely undergo similar government scrutiny.

As demonstrated by the media coverage of the AT&T-Liberty deal in Puerto Rico and the Virgin Islands, the main questions for consumers affected by such deals is whether they will lead to lower prices and increased innovations—either as originally structured or as modified through antitrust enforcement.  For such consumers, the hope is that the antitrust laws will fulfill their promise by ensuring well-structured deals that lead to greater competition in telecommunications, lower prices and higher quality services.

Edited by Gary J. Malone

Tagged in: Antitrust Litigation,