Senators Worry About AT&T/T-Mobile Deal’s Impact on Competition

AT&T would accept a condition prohibiting it from using Universal Service Fund money to build out LTE wireless broadband to 97 percent of the country, the carrier’s CEO Randall Stephenson told Kohl. But the AT&T CEO would not agree to a commitment proposed by Sen. Amy Klobuchar, D-Minn., to stop signing handset exclusives. After the hearing, Stephenson told reporters he expected there would be divestitures as part of the deal’s approval. “We've done a number of these transactions, large and small,” he said. “In each transaction, there have been concessions where we've agreed to divest certain assets, and so I have no doubt that this will have similar requirements."

"An industry that once was a monopoly owned by AT&T in the last century is in danger of reverting to a duopoly in this new century,” Kohl said during the hearing, asking whether that was in the nation’s interest. Sen. Al Franken, D-Minn., agreed, saying he fears that “if approved, the merger would take us one more step … to the monopoly market we had under Ma Bell.” That would increase prices and kill thousands of jobs, he said. Judiciary Committee Chairman Patrick Leahy, D-Vt., urged an “exhaustive review” at the FCC and Department of Justice. “I expect that the Justice Department is wary of creating a market where additional companies need to merge in order to survive,” he said.

Sen. John Cornyn, R-Texas, doesn’t see “any danger” of going back to the Ma Bell model. “Congress ought to be very humble about our ability to predict the sort of innovation that’s going to be created” in the wireless market, he said. But the subcommittee’s Ranking Member Mike Lee, R-Utah, said he shared some of Kohl’s concerns. “It is our responsibility … to ensure the proposed merger would not produce damaging competitive effects,” he said.

Going from three to two national carriers after the deal is possible, Sprint CEO Dan Hesse said. “It would make it more difficult for Sprint to compete” and “puts us in a position to be acquired” by AT&T or Verizon, he said. But AT&T CEO Randall Stephenson said MetroPCS and other regional carriers represent major competition. “This is a vibrant, active competitive environment,” he said.

Kohl and Lee appeared skeptical that regional carriers represent real competition to AT&T. Kohl questioned whether regional phone companies can actually compete with the “national giants” who offer the latest phones. Lee agreed, saying regional carriers currently rely on roaming agreements with the major carriers. Saying AT&T competes against MetroPCS is like saying Wal-Mart competes against a mom-and-pop store, said Public Knowledge President Gigi Sohn.

Democratic senators disagreed with AT&T and T-Mobile that regulators should consider the deal on a local rather than national basis. “Your business is a national business and that is in large part because the wireless market is a national market,” Franken told Stephenson. Kohl said AT&T previously argued that mergers with Cingular and Centennial were national. But AT&T’s Stephenson said consumers choose a carrier based on their local market. For that reason, AT&T offers unique promotions in areas served by MetroPCS, for example, he said.

"If this isn’t a national business, I don’t know what is,” Sprint CEO Dan Hesse said. He said 99.7 percent of Sprint customers are on national plans, and 99 percent of the company’s ads are national. Cellular South CEO Hu Meena agreed the market is national, saying all of his customers are interested in national plans.

AT&T and T-Mobile executives hesitated even to say their companies competed against each other. Stephenson told Kohl that T-Mobile is not AT&T’s “competitive focus,” and removing T-Mobile as a price competitor did “not factor into the equation” when it decided to make a deal. T-Mobile CEO Philipp Humm would only say that both companies competed in a very competitive market. But Kohl dismissed those messages. “You two are major competitors” and it’s not credible to say otherwise, he said. Serving the national interest couldn’t have been the main impetus for making the deal, Kohl said. “This is a business deal to make your company more successful and more profitable."

"Our analysis … should be guided by what will be best for consumers” on price, service quality, and range of choice,” Lee said. A key question is whether the proposed deal “is a positive step along the path for a world-class wireless network across the United States,” he said. Lee favors market approaches to building broadband compared to government funding, and the AT&T deal could help address increasing consumer demand for wireless, he said.

Rural carriers may continue to be left behind “with or without” the AT&T deal, said Leahy. AT&T says the deal will enable it to roll out LTE service across Vermont, but “knowing how slowly things have moved in the past I hope you will forgive me if I'm a bit skeptical,” Leahy said. AT&T and T-Mobile appear to have large swaths of unused spectrum in Vermont, he added. Kohl asked if AT&T needed to merge with T-Mobile to spread broadband to 97 percent of the nation. “Could it achieve this laudable goal by spending some of the $39 billion it will spend to acquire T-Mobile to expand its network instead?"

Stephenson said AT&T will reach more rural areas with T-Mobile, including Iowa, the home state of Judiciary Committee Ranking Republican Chuck Grassley. Grassley asked how the deal would improve service in Sioux City, which is not served by T-Mobile. The AT&T CEO said it’s “going to require some effort, but I think we can do it.”

Stephenson said the deal could lower consumer prices because prices are tied to capacity. “Capacity is the basis for moving prices down in this industry,” he said. AT&T charges what it does now because it has low capacity, but more capacity could allow the company to lower prices, he said. Asked by Lee if it’s better to have fewer companies that each have more spectrum, Stephenson said, “I don’t think fewer companies is necessarily better,” but if the U.S. wants to achieve widespread broadband deployment, “we are going to have to think differently."

AT&T is overstating its spectrum crunch, Sohn said. AT&T has a lot of spectrum that’s not been built out, and the carrier uses what it has inefficiently, she said. AT&T is running three generations of technology on its network, she said. It has ignored technology to bond noncontiguous spectrum, and hasn’t made widely available technology to offload capacity like femtocells, she said. Stephenson countered that the company can’t take 2G off the air and require 2G customers to buy new handsets.

Stephenson never committed to lowering AT&T prices. Rather, he said history showed wireless prices have consistently dropped. Stephenson said the company would honor all T-Mobile customers’ existing rates, including customers that pay the carrier on a month-to-month basis without contract. But he said current AT&T customers would not gain access to T-Mobile’s rate plans. “If they wanted the T-Mobile pricing plans, they've had those options for a long time now."

The deal would worsen roaming and special access arrangements, said Hesse and Meena. The combination would eliminate a potential LTE roaming partner, and the FCC’s recent roaming order would not mitigate anything, said Meena. Cellular South does not have enough buying power to get 700 MHz devices that roam on AT&T’s proprietary band class, he said. Stephenson said the carrier would continue to follow the law to make roaming agreements at reasonably low rates.