We return this week to the story that's been dominating our Headlines since mid-March: AT&T's acquisition of T-Mobile.
First off, thankfully, there's no worries: the deal is on track to close by March 2012. No problems. No unexpected resistance. Nothing to see here behind the curtain. Or so says AT&T. The company's general counsel, Wayne Watts, met with DC reporters June 21 to reiterate that the deal will get done as things move along at both the Department of Justice and the Federal Communications Commission.
Typical of the support AT&T has gotten for the deal, the National Hispanic Foundation for the Arts sent a letter to the FCC this week citing the familiar arguments in favor of the merger from proponents: that it will speed the deployment of 4G wireless broadband to more than 97 percent of the population and increase the membership of the Communications Workers of America (CWA). The letter also touts AT&T's commitment to preventing online piracy of movies and music while T-Mobile's efforts have been "less than adequate." NHFA argues the acquisition of T-Mobile would benefit content creators because AT&T has gone much further than T-Mobile to ensure its networks aren't used to download pirated content.
But the NHFA's letter of support is also typical of a darker side of this debate. Much of AT&T's support has come from organizations with direct financial ties to AT&T. The Hill reported that NHFA received a total of $10,000 in contributions from AT&T over the past five years. In eWeek , Wayne Rash reports that AT&T is liberally distributing donations to non-profit organizations and making promises to them about rural broadband Internet service that it likely won’t keep to encourage them to say positive things to the FCC about the acquisition. AT&T’s own congressional testimony, Rash points out, about the merger has shown that T-Mobile’s wireless services are concentrated in urban areas. AT&T’s buyout of T-Mobile will have little effect on whether or not AT&T ever extends wireless broadband services to rural areas.
Rash focuses on support for the acquisition from the Internet Innovation Alliance and its new honorary chair, former Rep Rick Boucher. Last week Boucher managed a press call in which he gently reminded IIA members to promote the deal and this week The Hill reported him arguing that the deal will not adversely impact competition in the wireless market. Absent in the coverage, Rash points out, is that Boucher is now a partner with the law firm of Sidley Austin. Sidley Austin maintains both legal and lobbying offices in Washington. One of the companies that Sidley Austin represents, and has for over 100 years, is AT&T. And, of course, AT&T is also a major sponsor of IIA.
Art Brodsky, the communications director for deal opponent Public Knowledge, dove a little deeper into CWA's support for the deal after noticing the union's supportive advertisement at this month's Netroots Nation conference. CWA claims that the acquisition will give 20,000 current T-Mobile non-union employees “a real opportunity” to form a union.
CWA doesn't mention that T-Mobile in 2009 was named “one of the 100 best companies to work for” by Fortune magazine, the first telecom company to be so included. Avoiding layoffs and having generous child care subsidies were the reasons T-Mobile was included. And, more to the point, T-Mobile now has about 40,000 employees. So CWA took half of them right off the top, assuming that CWA partner, job-killing, but unionized AT&T, wouldn't keep them around.
Brodsky concludes: "The bottom line: for a chance – just a chance — to get 20,000 new members, CWA is willing to lead progressive organizations and Democrats into a world in which AT&T and the (nonunion) Verizon Wireless rule the air, creating an almost duopoly, setting up a GSM monopoly, squeezing out smaller players and setting the stage for higher prices, fewer features on phones, and more stringent bandwidth caps. Or just about anything else those two companies want to do as their protectors in Congress (hint: not usually Democrats) will resist regulation to the bitter end claiming the 'market' will solve all and that we couldn't possibly have regulation."
With the support of labor and many non-profit groups, AT&T is gaining the backing of many Members of Congress. At our deadline, a letter to Attorney General Eric Holder and Federal Communications Commission Chairman Julius Genachowski circulating in the House asks the regulators reviewing the merger to keep in mind AT&T's promised benefits of the deal.
This week also saw AT&T launch its first ad touting the network improvements that would result from the deal.
Even all this effort, however, can't seem to mask a heavy undertow working against approval of the deal. On June 18, Gay & Lesbian Alliance Against Defamation (GLAAD) President Jarrett Barrios resigned http://benton.org/node/78367 his post and quickly thereafter six board members stepped down as well. http://benton.org/node/79221 The resignations came in the wake the organization's letter in support of AT&T/T-Mobile.
On the ground, we're already seeing the impact of the proposed deal. The Wall Street Journal reported that with he outlook for retail stores uncertain, some T-Mobile dealers are selling out or slicing back expansion plans, creating new challenges for T-Mobile as it tries to hang on to subscribers and dealing another blow to landlords already coping with a string of retail bankruptcies. And Politico reported that, if the deal goes through, AT&T and Verizon could dominate the mobile backhaul market. The future of the independent backhaul business may be at risk. Under a new AT&T-Verizon pact, the two largest wireless companies have a reciprocal arrangement to provide infrastructure to connect each other’s wireless data traffic wherever one or the other is the incumbent wireline provider. Smaller companies could be squeezed out of the market as a result.
June 20 was the FCC deadline for public commenters to make their case against approving the deal.
The New York State Public Service Commission warned the FCC that the deal could significantly harm public interest and stifle competition for wireless services. NYPSC stopped short of calling on the FCC to deny the $39 billion merger, but it urged the commission to closely evaluate on a market-by-market basis how it could impact wireless concentration. New York can influence the transaction by successfully arguing that state residents, particularly those in New York City, will be "disproportionately" affected.
A coalition of public interest groups blasted the deal , arguing the transaction would harm consumers and curtail competition in the wireless market. "Removing one of three direct competitors with AT&T from the nationwide market — and its only competitor in the GSM submarket — would leave a void that no other carrier is capable of filling," the groups state. "Removing T-Mobile, in particular — a consumer-friendly, price-disciplining, maverick provider of low-cost and innovative mobile wireless products in an increasingly consolidated market — implicates the public interest even more palpably. "No amount of rhetoric or economic gerrymandering of markets can change that fact." The public interest groups claim AT&T has previously resisted investing to improve capacity and deploy next generation wireless networks as competitor Verizon Wireless has done. The groups argue AT&T shouldn't be rewarded by attaching its willingness to build out its network to the government's approval of the merger. "'Maximizing AT&T's wealth' is not, and never has been, a public interest benefit justifying any merger, much less a legally cognizable merger-efficiency that could justify increasing concentration in an already highly-concentrated industry," the groups state.
Free Press disputed at the FCC (and Congress http://benton.org/node/79275) AT&T’s claims that the merger will bring better broadband coverage and improved service to consumers, create jobs and increase investment, and lower prices. "AT&T's argument basically boils down to the proposition that what's good for AT&T is good for the country. Of course, the FCC and the Department of Justice cannot accept this self-serving claim," said Free Press Policy Director Matt Wood. Free Press says AT&T's promises exaggerate any minimal benefit associated with the merger.
- First, even if AT&T does not merge with T-Mobile, competitive pressure will force to AT&T to serve these areas with its own LTE network. According to public statements, Verizon’s LTE network will cover these areas in the next several years.2 If AT&T fails to offer the fastest speeds to consumers, there is no doubt that it will lose significant market share to Verizon. Thus, AT&T cannot afford to delay significantly its deployment of LTE.
- Second, all of these areas will be served by AT&T’s “4G” HSPA+ service by the end of 2012. The HSPA+ service will delivers speeds exceeding 7 megabits per second. At that point, the incremental value of the transition to LTE will be negligible: real world speed tests indicate that the difference in downstream speed between 4G HSPA+ and 4G LTE is not particularly significant, and studies suggest that consumers may not perceive significant value in moving from one 4G technology to another.
- Third, even if AT&T never builds out its LTE network to 97% of the population, Verizon’s network will reach those citizens, so they will still have the opportunity to subscribe to LTE service. Thus, the merger is clearly not necessary to bring next-generation broadband to all Americans.
Public Knowledge's analysis of the deal finds it to be illegal (see also). PK finds that AT&T’s acquisition of T-Mobile violates Section 314 of the Communications Act because the merger will reduce the competitors for international wireless subscribers' roaming services in the US. A number of foreign carriers and governments have raised the international roaming question and protested that losing T-Mobile means going from 2 national GSM-based networks down to 1. Even if we adopt AT&T’s standard of only looking at local markets, ignoring national markets, and assuming all carriers are equal, you still have many local markets where you drop from 2 GSM-based carriers networks to just AT&T. And in the markets where you have another local GSM-based carrier, the number drops from 3 to 2. Why does that matter? Because GSM is the standard for almost every other country in the world. To do international roaming with most of the world, at least until we have broader LTE deployment here and in other countries (where LTE deployment is even slower than here), you need a GSM-based partner. So the presence of Sprint, Verizon, or any other CDMA-based carrier is irrelevant to the impact on international roaming. Post merger, in most markets, it’s either AT&T or no one.
So even as AT&T continues to offer the "inevitability" story line, there's still a long way to go in this drama. Although AT&T is touting the support of unions and non-profits, as noted above, there's more and more scrutiny of the claims those groups are making.
The National Hispanic Media Coalition's Jessica Gonzalez points out how important this debate is for the Latino community -- nearly 25% of T-Mobile’s 34 million customers are Latino. Why? More affordable service, flexible plans, and customer service. Gonzalez also points to the jobs at risk if the deal is approved.
ColorOfCahnge.org launched a campaign to raise awareness of the deal's potential negative consequences for African Americans. The group also questions the major civil rights groups that have come out in support of the merger. “The deal is likely to destroy jobs, raise the price of cellular service and threaten net neutrality for wireless high-speed Internet,” the group claims. “Protecting net neutrality for wireless broadband in increasingly important as more and more people use their phones to access the Internet, especially African Americans,” says a new report from the group. Color of Change’s study says that combining the two companies would effectively get rid of the competition, causing a snowball of other problems to gather, and that false and deceptive arguments have been used to support the merger.
We continue to monitor all the coverage of the deal and you can track it. We'll see you next week in Headlines.