May 21-June 3: AT&T/T-Mobile Under the Microscope
Over the past two weeks, we've seen steady progress on AT&T's proposed purchase of T-Mobile. Camps of supporters and opponents have formed as well as narratives the sides have begun to tell. For AT&T, the partyline now is -- there's great support for the deal. But some good reporting casts some doubt on that storyline.
We start our review with a story the Wall Street Journal ran on Tuesday, May 31 -- AT&T's Critics on Deal Growing. The Columbia Journalism Review noted the piece with a wish that other papers would follow suit. AT&T's mantra has been, as the WSJ piece notes, "Opposition is not growing. If anything, it seems fairly confined to the usual people and the usual organizations and does not seem to be growing beyond that.” The WSJ counters that opposition is steadily growing as competitors, state regulators and elected officials have come out in recent days expressing concerns about the acquisition.
As we've noted before, the Benton Foundation is closely tracking this transaction review (http://benton.org/headlines/at-t-t-mobile). There you can find links to all the comments the Federal Communications Commission has received so far in its review. At our deadline, nearly 10,000 filings have been made in this docket. The vast majority of these comments are letters from individuals stating their opposition to the deal. A sample letter reads:
AT&T's takeover of T-Mobile would stifle choice and innovation in the market, harm consumers, and lead to higher prices and fewer jobs nationwide. Don't let AT&T put our mobile future at risk. Please stand with me and reject such reckless consolidation of the mobile industry.
Writing in PC Magazine, Sascha Segan goes so far to say that comments are "falling into two main buckets: individuals opposing the merger (many with auto-generated robo-comments from consumer advocacy Web sites), and groups or organizations supporting it." Now we've been trying to quantify the number of pro and con stories and editorials we've seen in our Headlines coverage. And our tally is 70-30 against the proposed deal. And there's plenty of detractors "with letterhead": Cellular South, Center for Digital Democracy, Cincinnati Bell Wireless, Clearwire, COMPTEL, Computer & Communications Industry Association, Consumers Union, Electronic Frontier Foundation, Free Press, Future of Music Coalition, Leap Wireless, Media Access Project, MetroPCS, Mobile 500 Alliance (Mobile DTV coalition), National Hispanic Media Coalition, New Jersey Division of Rate Counsel, New York State Public Service Commission, Open Technology Initiative of the New America Foundation, Public Knowledge, Rural Cellular Association, Seattle Times, Sprint.
Segan goes on to try to categorize the support. Among supporters, most said the merger will lead to more high-speed Internet access nationwide, but we're getting more high-speed Internet access anyway; Verizon seems to announce new 4G cities daily, and T-Mobile has already described plans to light up 55 cities with LTE-like speeds this summer. So Segan looked for reasons beyond merely "there will be more 4G." Here's what he found:
- Unions: AT&T's supporter list includes a roll-call of labor groups from the AFL-CIO to Unite Here. They're unified with a simple message: AT&T workers belong to a union, while T-Mobile has busted unions. So AT&T ownership would be better for workers than T-Mobile's current management.
- Free Marketers: Organizations that generally oppose government regulation, like chambers of commerce, are lining up in support of the merger.
- Ethnic Groups: The AT&T/T-Mobile merger is supported by a genuinely bizarre array of ethnic-related organizations. The California Journal for Filipino Americans, the National (Black) Medical Association, and the Filipino American Arts Exposition don't seem like the kinds of groups who'd have opinions on wireless issues, but here they are.
- The Coverage Argument: Rural groups seem to be supportive of anything that will improve wireless coverage in rural areas.
- AT&T Relatives: AT&T is a big company with its fingers in a lot of pies. I didn't find any real evidence of "astroturfing" going on -- nobody told me their letter had been solicited by AT&T. But when Segan called Sam Duran at the Urban Corps of San Diego County, he readily admitted that his focus is on job training and conservation programs in the San Diego area -- not on wireless. Then Segan noticed that one of the board members for the organization is Christine Moore, AT&T's director of external affairs.
The Washington Post's Cecilia Kang did a nice job of exploring what AT&T is willing to spend to win approval of the deal -- and who might be included in the "AT&T Relatives" category. According to the Center for Responsive Politics, AT&T spent $6.8 million in the first three months of 2011 to hire lobbying shops and lawyers, who in large part are making the case to federal officials to approve the deal. AT&T’s lobbying expenditures are the third-largest among companies and trade groups so far this year, the center’s figures showed. The company is on track to spend more than the $15 million it paid lobbyists in 2010 to argue against policies such as Internet access rules and cellphone billing regulation.
Aside from money spent directly on lobbying government officials, industry observers say, AT&T is receiving support from several political leaders, trade groups and organizations such as the NAACP and at least one affiliate of the National Urban League. All have direct financial ties to the telecom giant. Among the 14 governors listed by AT&T as supporters of the proposed merger is Bobby Jindal (R) of Louisiana. AT&T is a key sponsor of the Supriya Jindal Foundation, a charity of the governor’s wife.
The FCC has received about 300 letters of support for AT&T. Some stand out:
- AT&T-sponsored Virginia Asian Chamber of Commerce urged the FCC to quickly approve the deal, saying that as a group “striving to create bridges between cultures, we look forward to the foundation that this merger will create and the opportunities that it will give the public.”
- The Urban League of Portland sent a similar letter to the FCC, saying the merger could help minorities gain faster access to broadband through a more robust, combined company. AT&T donated $125,000 to $249,999 last year to the National Urban League’s annual convention, the group said on its Web site.
"When you are as big as AT&T, you try to make as many friends as you can get,” said Nick Nyhart, president of Public Campaign, a lobbying and political finance reform group. “Its strength is its size, and this is the approach by other big companies, not just in telecom."
In the press, Sprint, the nation's third-largest wireless carrier, has been dubbed the leader of the opposition of the deal. And here's some of what the company had to tell the FCC about why the agency should reject the transaction:
The transaction would make AT&T the nation’s largest wireless carrier with 118 million subscribers in total and 43 percent of the post-paid market. Coupled with Verizon’s more than 94.1 million total subscribers and 39 percent of the post-paid market, the transaction would create a Twin Bell duopoly with 82 percent of post-paid subscribers, over 78 percent of all wireless revenues, and 88 percent of all wireless operating profits. The Twin Bells’ market dominance would dwarf Sprint, the sole remaining national carrier, and the rest of the wireless industry, thereby creating an entrenched, anti-competitive duopoly.
AT&T’s alleged capacity constraints are contradicted by the facts. Even without the proposed transaction, AT&T has the largest licensed spectrum holdings of any wireless carrier. AT&T also is the largest holder of unused spectrum….AT&T could use this reserve of spectrum to improve service for its customers, but has chosen instead to warehouse it for future services….If AT&T has capacity constraints, they are the result of its failure to upgrade and invest in its network. AT&T has lagged significantly in network investment. Its network investment per subscriber has been below the industry average, even after its exclusive iPhone deal placed increased demands on its network….
The Application asserts that AT&T’s network is facing dire capacity constraints, but in January of this year AT&T’s CEO proclaimed that “we’re really starting to feel good about the network situation” and just two years ago another AT&T executive stated that “[w]e feel very good about our spectrum position … [a]nd we say that with full understanding of what the data demands will be.
The FCC, for its part, continues its review of the proposed deal. On May 27, the agency sent T-Mobile a request for additional information, some 47 questions, on issues including spectrum capacity, alternatives considered by T-Mobile, a timeline of the proposed deal, cell tower positions, and much, much more. The FCC requests answers to the questions no later than June 10. A 78-page request asks AT&T 50 detailed questions about its spectrum holdings, its network and its contention that it needs T-Mobile's airwaves to provide nearly seamless mobile broadband service across the US. In the data request, the FCC asked for any "plans, analyses and reports" on the wireless giant's capacity constraints and any alternatives AT&T considered for solving its network capacity constraints other than buying T-Mobile. The agency also asked for pricing information about AT&T's services and "any competitor's pricing lists," including pricing policies, forecasts and tiered pricing models. The agency also asked for detailed information about AT&T's coverage areas, including areas where it "does not possess sufficient spectrum to deploy LTE," and its agreements with other carriers, including deals to offer roaming. The FCC's data requests are the clearest signals the agency will provide to the public about the issues it will examine during its review of the acquisition.
The FCC also sent 36 questions to AT&T and QUALCOMM about their spectrum license deal and the potential impact that could have on the AT&T/T-Mobile deal. The FCC asked for replies by June 3. AT&T had asked to keep the reviews of the two deals separate.
On May 26, the California Public Utilities Commission decided it will review the deal as well.
Also on May 26, the House Committee on the Judiciary's Subcommittee on Intellectual Property, Competition and the Internet held a hearing on the deal. Lawmakers from both sides of the aisle expressed skepticism that the transaction would lead to the consumer benefits that AT&T has promised.
With AT&T/QUALCOMM answers due today, AT&T/T-Mobile answers due Friday, June 10, and the deadline for next round of public comment at the FCC June 10 as well, there's lots more to come in this review. 'Til then, we'll see you in Headlines.