Consumer Groups Oppose Sprint-Nextel Merger
Consumer groups urged the FCC to deny a proposed merger of Sprint and Nextel. “FCC approval of this transaction will harm consumers by allowing one entity to control an excessive amount of mobile broadband communications spectrum in many markets throughout the country,” Consumer Federation of America (CFA) and Consumers Union (CU) told the Commission jointly: “The public and consumer interest… could be affected by the anticompetitive harms identified in the petition.” Alternatively, the groups said, the FCC should require “substantial divestitures of spectrum to repair harm to actual and potential competition.”
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“Sprint-Nextel proposes to own or control a huge swath of spectrum across a number of bands, with signal carrying capacity in many markets far in excess of what the Commission contemplated,” the groups said. They said the combined company would control nearly 60 MHz of broadband wireless spectrum (other than in the 2.5 GHz band) in many markets. A basic trading area (BTA) license of the broadband radio service (BRS) spectrum generally authorizes use of 78 MHz of spectrum in a market. “Even assuming a modest loss of spectrum as a result of the FCC’s recent reconfiguration of the 2.5 GHz band, Sprint- Nextel will still be licensed for over 130 MHz of wireless communications spectrum in many markets,” CFA and CU said.
Besides the BRS spectrum it would hold, Sprint-Nextel would also be permitted to use, through leasing agreements, spectrum in the educational broadband service (EBS), the groups warned. The 2.5 GHz band consists of 194 MHz of EBS and BRS spectrum at 2496-2690 MHz. Even if some EBS spectrum will continue to be reserved for educational licensees, with guard band spectrum in the 2.5 GHz band, in some markets Nextel-Sprint could have access to nearly 200 MHz of spectrum, “dramatically in excess of what the FCC found to be an acceptable level of spectrum held by one entity in the Cingular-AT&T Wireless transaction,” they said.
“One entity holding so much spectrum is antithetical to the public interest,” CFA and CU said, citing sentiments the Commission voiced on the Cingular-AT&T Wireless transaction. They said limits on available wireless broadband spectrum and the need for an FCC license to spectrum mean any new company trying to compete with the merged company would face “an extreme capacity constraint.” Hence, “few existing competitors and no new competitors would be in a position to discipline Sprint- Nextel’s exercise of market power over price or the merged firm’s decision to restrict output,” they said.
Although it typically hasn’t, the FCC should consider 2.5 GHz of spectrum along with cellular, PCS and specialized mobile radio (SMR) as broadband wireless spectrum because of changes in technology and regulation, CFA and CU said. Sprint-Nextel would have “substantially all” licensed 2.5 GHz assets, a circumstance that could give it “substantial market power over all mobile broadband services, regardless of the type of spectrum used to provide them, and therefore distort the mobile broadband market across the different services,” the groups said, saying the impact could extent even to the traditional voice market.
The FCC should require the combined company to divest spectrum on a market-by-market basis wherever Sprint- Nextel would hold “sufficient spectrum to produce anti- competitive results,” CFA and CU said. Spectrum concentration should be reviewed locally, they said, with weight given to a single entity’s total capacity and accounting for different frequencies’ propagation characteristics.
CWA also urged the FCC to condition a merger approval on the companies’ commitment to divest themselves of spectrum and licenses in local markets where the proposed transaction would harm competition. It said in following the framework set in the Cingular-AT&T Wireless merger review, the FCC should conduct “a thorough case-by-case competitive analysis” of the transaction. The FCC should also consider the high level of concentration in the national mobile telephony market, CWA said. For example, it said the Herfindahl-Hirschman Index (HHI) -- the index used by the Dept. of Justice to calculate market concentration -- for the pre-merger national mobile telephony market is 2479 and post-merger the HHI would rise to 3016. “The DoJ considers a market with an HHI above 1800 highly concentrated, and an HHI increase over 100 to create a presumption of market power,” CWA said.
CWA wants the FCC to ensure that the proposed merger doesn’t harm Sprint’s about 8 million local customers. Sprint has said it plans to spin off its local division as part of the merger agreement. CWA said the FCC must condition any approval of the merger on the combined company’s commitment to an “equitable division of assets and debt” at the time of spin-off.
Several small wireless companies urged the FCC to deny the merger or subject approval to conditions and divestitures to ensure competition. Others said they didn’t oppose the deal, but asked the Commission to use the merger to set a policy requiring large wireless companies to agree to voice and data roaming agreements with small carriers.