Conyers Doubts Benefits of AT&T/T-Mobile

Conyers warned that more wireless industry consolidation would follow if regulators approve the AT&T/T-Mobile deal. AT&T touts many benefits of their deal, but “they do not need T-Mobile” to reach 97 percent of the country with wireless broadband, Conyers said. The ranking member said he’s “never met a merger that I liked,” because they always cost jobs, reduce competition and hurt consumers, he said. Conyers criticized the past three administrations for refusing to block mergers. The Obama administration has blocked “very few,” he said: “Oh yes, they've put out conditions,” but “that’s the last anybody ever hears about the conditions."

Issa said he sees “good wireless synergies” from the deal but he worries about concentration in backhaul. “The fact is we're reassembling a duopoly on the backend, and I'm going to want to know” there are protections for “remaining non-wireline companies” so that “their backhaul capabilities are delivered at a fair price,” Issa said. “I wasn’t here when Judge [Harold] Greene executed the breakup [of the AT&T monopoly], but now that it’s reassembled, I hope that this committee will look at that part of it.”

"The burden of proof is on AT&T to show that this merger does not reduce competition,” said Judiciary Committee Chairman Lamar Smith, R-Texas. He urged the Justice Department to do “fair analysis of the facts, economics and the law.” Unlike previous wireless deals that have come before DOJ, this one proposes a merger of “two nationwide networks,” Internet Subcommittee Chairman Bob Goodlatte, R-Va., said. Ranking Member Mel Watt, D-N.C., asked many questions but said Congress should allow DOJ and the FCC to do their job “unfettered” by political pressure.

Stephenson said joining with T-Mobile gives AT&T “profit incentive” to bring wireless broadband to unserved rural areas. AT&T currently lacks motivation to make the investment in high-cost areas, he said. Witnesses from consumer and competitive groups cast doubt on the promise. T-Mobile isn’t building out to rural areas, so it’s unclear why adding their spectrum would help AT&T reach those places, said Consumers Union Policy Counsel Parul Desai. AT&T already has spectrum in rural areas, but has declined to use it, said Rural Cellular Association CEO Steve Berry. The allegedly “unused spectrum” will be used for LTE, and AT&T has started to build out, but the process will “take time,” Stephenson said.

Stephenson admitted there would be job redundancies once the companies combine, but said the company would try to move affected employees to other positions in the company. Also, the company will create many more jobs by virtue of its planned $8 billion investment over three years, Stephenson said. “In the short term, there may be a modest reduction” in jobs, but over two to three years, “this should be a job creator,” he said.

AT&T has “multiple” competitors in backhaul, Stephenson said: “Pricing discipline is in the marketplace.” The FCC has a proceeding open “to ensure fair and good price access to these facilities, he added.

The special access market is a “very competitive environment,” and T-Mobile has become “increasingly independent from the local telephone companies,” Deutsche Telekom CEO Rene Olbermann said. T-Mobile historically has urged special access reform because it has said the market isn’t competitive. If the deal is blocked, Olbermann said the company would “try to make the best of what we have and try to compete."

"T-Mobile does not exert strong competitive pressure on AT&T, and other providers already fill -- or could easily move to fill -- whatever competitive role T-Mobile occupies today,” Stephenson said in opening testimony. Sprint Nextel, MetroPCs and Leap Wireless are candidates, he said. Olbermann said T-Mobile USA faced “increasingly fierce competition” from mobile virtual network operators, regional wireless carriers and over-the-top providers like Skype and Google Voice. T-Mobile doesn’t have spectrum to deploy LTE, so by itself it won’t keep up with competitors, Olbermann said.

The deal will hurt consumers and competition, asserted witnesses for Consumers Union and the Rural Cellular Association. Reduced competition will force the FCC and Congress to increase regulation on the industry to “artificially maintain” the benefits of competition, Berry said. Fewer competitors means higher prices for consumers, said Desai.

Goodlatte doesn’t expect another hearing on the deal in his subcommittee, but the panel will review the hearing and make recommendations to DOJ if appropriate, Goodlatte told us after the hearing. “It is concerning that we'll go from four national carriers to three,” and that two companies will probably control “all the backhaul,” he said. The potential loss of Sprint Nextel after the deal is another worry, he said. “Going from four to three is not good, going from three to two would be a lot worse.” But the deal will introduce AT&T as a competitor in rural areas, Goodlatte said. That’s good unless AT&T’s presence drives out smaller companies, he said.

The AT&T/T-Mobile combination could be better than T-Mobile withdrawing from the market, Watt said after the hearing. Watt is concerned about the possibility of losing Sprint and ending up with two competitors, but the FCC and DOJ may not be able to make that assumption as they review the deal, Watt said.