Public interest arguments surrounding AT&T acquisition of T-Mobile drawing sharp divisions, opposition

AT&T Inc.'s proposed deal to purchase T-Mobile USA Inc. is drawing sharp divisions in the U.S. as the Federal Communications Commission (FCC) considers whether the transaction is in the public interest. Opposition to the merger has reached the point that some observers say regulators may deny the deal or force AT&T to sell off some of its assets. In March AT&T announced that it had entered an agreement with Deutsche Telekom AG to acquire subsidiary T-Mobile for $25 billion US in cash and $14 billion US in stock for a total of $39 billion US. One of the regulatory requirements the FCC looks at when it approves mergers is whether the transaction is in the public interest. The regulator examined the public interest question before approving the merger between Comcast Corp. and NBCUniversal Inc. this year. Sal Tirabassi, a partner with M/C Venture Partners, a Boston-based venture capital firm and one of the investors behind Public Mobile Inc. in Canada, said in an interview that the merger could result in better services. “But customers will end up paying more, because pricing will firm up to some degree. You’re basically taking a competitor out of the market,” he said. Although the deal would see AT&T acquire T-Mobile’s spectrum assets, Tirabassi said he does not believe the acquisition “is going to take AT&T out of the next auction. They’ll bid anyway.” He said he expects regulators to force AT&T to sell off some assets to avoid creating a monolithic organization with too much market control. It’s possible that the regulator could also require that assets be sold off to give a competitive boost to a smaller player, he said. Another effect of the merger is that it could push Verizon to try to acquire another company to compete with a more powerful AT&T, Tirabassi added. The FCC launched its review of the AT&T and T-Mobile transaction in April, noting that it is considering market concentration, spectrum coverage, spectrum availability, and competition issues. The FCC stated in a recent report to Congress that “ensuring an active competitive marketplace must remain a key imperative.” In April, AT&T filed a public interest statement with the FCC outlining the merger’s positive attributes. In June, it filed a reply to petitions to deny the application. The carrier pointed out that mobile data volumes on its network increased 8,000 per cent from 2007 to 2010, and that it is using spectrum “at an accelerated rate.” A merger would enable AT&T to use spectrum more efficiently via cell splitting, in which cells or coverage areas are re-mapped to increase network capacity. “This transaction will thus benefit consumers by reducing the number of dropped and blocked calls, increasing data speeds, improving in-building coverage, and dramatically expanding deployment of next-generation mobile technology,” AT&T wrote. The company added that, with T-Mobile's infrastructure, it plans to deploy 4G LTE to more than 97 per cent of the population in the U.S. “In the process it will create jobs and investment, help bridge the digital divide, and help achieve the Administration’s rural broadband objectives, all without the expenditure of government funds,” AT&T wrote. “For these reasons and others, the transaction has drawn unprecedented support from across the political, social, and commercial landscape, including government officials; organized labor; the high-tech industry and its investors; advocates for minorities, rural communities and the environment; and many others.” But the proposed merger is also drawing a wave of opposition. In a letter filed with the FCC, the National Association of State Utility Consumer Advocates (NASUCA) wrote that 50 organizations are denouncing the merger and that just two support it. The group highlighted the comments of Lee Selwyn, president of Economics and Technology Inc., who in May wrote to the FCC in opposition to the merger on behalf of the Ad Hoc Telecommunications Users Group. Selwyn wrote that the AT&T and T-Mobile merger would give the consolidated company access to cost efficiencies that its competitors cannot match. Advocacy group New Media Rights also submitted comments with the FCC that said the merger would negatively affect innovation, Internet access, customer-service quality, prices, service availability and consumer privacy. With less competition, carriers are less inclined to build privacy protections into products, the group wrote. In a June 9 op-ed published on BroadbandBreakfast.com, Art Neill, director of New Media Rights, wrote that, through the transaction, AT&T would control nearly 40 per cent of the wireless market, creating a duopoly with Verizon Communications Inc. that approaches 80 per cent. Sprint, AT&T's competitor, argues that the deal would remove a competitor from the marketplace and pave the way for higher prices and less competition and innovation. In May, Sprint filed a petition with the FCC requesting that the regulator block AT&T’s T-Mobile takeover, saying that there are holes in AT&T’s spectrum-efficiency argument. “AT&T is already the largest holder of licensed spectrum and unused spectrum, and has simply failed to upgrade or invest sufficiently in its network,” Sprint wrote. John Lawford, research analyst and counsel with the Public Interest Advocacy Centre (PIAC) in Ottawa, said AT&T has its targets set on market dominance. “They’re saying things work great when there’s a monopoly, and boy, we could bring you fantastic things if we had all the business.” He said that, given the opposition to the deal, “there’s a better than half chance that it will be denied.” Lawford said AT&T was caught off guard by the level of opposition—especially that of Sprint. “I think Sprint joining and saying no was a big deal. Sprint could have just waited to be combined with Verizon,” Lawford said. If the merger is approved, it sets a precedent for the rest of North America, he added. Canadian service providers would have an argument for market consolidation this side of the border. “Companies here could say, ‘We’re in the same ballpark.’” Roberta Fox, head of telecom consulting firm Fox Group Consulting, said AT&T’s acquisition plan is pragmatic given the state of capital markets. “If four or five carriers can’t afford to build, isn’t it better to combine them and have not so many sinking money into upgrades?” Fox said. “Capital markets are not investing in infrastructure in the U.S.” T-Mobile has a reputation for being innovative, she added, and it's not clear that the company can maintain its leadership in that area as an AT&T subsidiary. Amit Kaminer, an analyst with SeaBoard Group, said in an interview that the U.S. market is in danger of losing a company known for innovation and excellent customer service. AT&T may be playing it smart, he added. In its acquisition of T-Mobile, the company does away with a competitor and has the chance to boost its own customer service by absorbing T-Mobile’s lauded best practices. news@thewirereport.ca

Public interest arguments surrounding AT&T acquisition of T-Mobile drawing sharp divisions, opposition

News | July 6, 2011

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