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AT&T Inc.'s proposed $39-billion purchase of T-Mobile USA puts the Obama administration in a bind as it tries to mend fences with a business community still upset over healthcare and financial regulatory overhauls.
President Obama has tried to be more friendly to corporate America as he urges companies to boost their hiring to reduce the high unemployment rate. He also wants wireless Internet to be expanded to far-flung rural areas, something the acquisition could foster. But the Obama administration is facing pressure from fellow Democrats and public interest groups to reject the deal, which would create a wireless behemoth and result in two companies — AT&T and Verizon Wireless — controlling 70% of the cellular telephone market.
AT&T, one of the nation's most politically influential companies, is poised for battle. Its political action committee and employees have contributed $46 million to federal candidates over the last two decades, more than any other company, according to the nonpartisan Center for Responsive Politics. AT&T spent $15.4 million lobbying Washington last year, the eighth-highest of all corporations. And it has ties to the White House — Obama's chief of staff, William Daley, is a former president of SBC Communications Inc., which bought AT&T in 2005, creating the current telecom giant.
"AT&T is the most aggressive, most hard-nosed player in the political realm of communications," said Andrew Jay Schwartzman, policy director of the Media Access Project, a public interest law firm. "They will make it difficult for the Obama administration."
AT&T has demonstrated its political savvy already. Unlike T-Mobile, AT&T is largely unionized and has support for the deal from the Communications Workers of America and the AFL-CIO, two influential Democratic constituencies. And AT&T said that as part of the deal, it would expand its next-generation wireless service, known as 4G, to 46.5 million more customers than planned — among them, T-Mobile's 34 million subscribers. The service would reach 95% of the U.S. population, including rural communities and small towns, thus helping achieve goals set by Obama and Federal Communications Commission to connect "every part of America to the digital age," AT&T said. "They're saying, 'You let us buy T-Mobile, and we'll provide faster wireless to 95% of the U.S., including rural America — isn't that great?'" said Kevin Roe, a technology analyst at Roe Equity Research. To counter concerns about the merger, AT&T also is predicting better wireless service for its customers.
AT&T merger bid puts Obama in a bind
AT&T is arguing that the its deal to buy T-Mobile fits in line with the Obama Administration’s plans to bring broadband to 95 percent of the country.
The company is arguing that combining their spectrum assets is the only way to alleviate constraints. Craig Moffett of Bernstein Research said the companies will also likely be willing to promise reduced consumer rates and the unionization of the wireless workforce to appeal to Democrats. Barclay’s Capital’s James Ratcliffe said that the regulatory challenges the deal will face are surmountable, but certainly not easy. Of course, the major obstacle to both players is the risk that the deal will not be approved because of antitrust concerns. AT&T has said that it will be able to win approval for the deal, a sentiment analysts seem to echo. “AT&T’s regulatory team is high-quality, and we don't think the company would be going down this path, (given $3 billion breakup fee, especially), if they didn't have high confidence of success,” Ratcliffe wrote.
Analyst Rebecca Arbogast of Stifel-Nicolaus said that she does not believe that even a Democratic Administration will be “stubborn about maintaining four as opposed to three nationwide wireless carriers,” but will be concerned about moving toward a wireless duopoly. She added that some state attorneys general may be able to weigh in, but are unlikely to act on their own to block the deal. From a business perspective, analysts say that the proposal is a win for both AT&T and Deustche Telekom, which will be able to easily integrate their networks. This deal is also a positive for Verizon, some analysts have said.
Ratcliffe wrote that, should the merger go through, “it would likely result in a more stable, less aggressively competitive wireless market in the long term. In the near term, the deal will almost certainly result in distraction at both AT&T and T-Mobile as they work to get regulatory approval for the transaction.” As for speculation that Verizon may now counter with an offer to buy Sprint, many analysts do not see that happening. Analysts universally agree that Sprint is the biggest loser from the deal. Also standing to lose in this deal are tower companies, as there will be a large reduction in cell sites. Another winner mentioned in analysts reports is Apple, which can now market its iPhone to T-Mobile’s customer base without having to make a new version of its handset.
Taking a wider lens, Arbogast of Stifel-Nicolaus said that the merger could change the conversation about spectrum, as joining forces could reduce spectrum demand and “possibly lower auction revenue estimates."
Battle over AT&T, T-Mobile deal begins in Washington AT&T's Expansion Raises Questions For Consumers (NPR)
Members of Congress are already signaling they intend to take a closer look at whether AT&T's $39 billion plan to purchase T-Mobile poses threats to competition or consumers.
First out of the gate March 20 was Sen. John Rockefeller (D-WV), chairman of the Senate Commerce Committee, who urged federal regulators to leave "no stone unturned" in their forthcoming review of a plan that would see AT&T become the country's largest wireless provider.
Sen. Herb Kohl (D-WI), chairman of the Senate's antitrust subcommittee, criticized the "increasingly concentrated market for mobile phone service," which he said had cost consumers in terms of price and choice, and promised a hearing on the matter. "The explosion of cell phone usage - especially smartphones - makes competition in this market more important than ever as a check on prices, consumer choice, and service," Chairman Kohl said. "That's why the Antitrust Subcommittee will take a close look at what this loss of competition will mean for people who increasingly rely on wireless phone service to connect to friends, family and the Internet."
House Judiciary Chairman Lamar Smith (R-TX) pledged to scrutinize to the proposed merger: "The proposed AT&T and T-Mobile merger raises important questions about competition in the telecom industry and the effect on American consumers," he said. "Congress must take a close look at the plan to ensure that the proposed merger promotes a healthy and competitive telecommunications market."
Congress will Scrutinize AT&T|T-Mobile merger House Judiciary to take on AT&T merger (The Hill)
Several sources in Washington (DC) are divided on the idea that the Department of Justice would approve AT&T buying T-Mobile.
One source who has held multiple roles in telecommunications politics pointed out that this deal is a horizontal integration that can clearly show a decline in competitiveness, so it should be easy for the DoJ to stop, especially since the FCC last year clearly documented how concentrated wireless ownership was becoming, using an index the Department of Justice actually uses to determine the concentration of mobile wireless service providers: the Herfindahl-Hirschman Index. Under that index, the FCC found that the average HHI increased in 2008 relative to prior years. The weighted average of the HHIs was 2848 in 2008, an increase from 2674 in 2007. The weighted-average HHI has increased by nearly 700 since the FCC first calculated this metric in 2003.
The industry has become more concentrated, leading to lowered capital expenditures and higher profits for the largest two players according to the report. Chetan Sharma, a wireless analyst, has calculated that this merger would increase the HHI by about 600 to 700 basis points nationally, and notes that DOJ antitrust scrutiny is applied to a merger if it would trigger an increase in the HHI of 100 basis points or greater. However, he said the FCC and DoJ may look at the markets on a regional basis, which could change the equation and result in AT&T giving up some of the T-Mobile assets. That’s in line with those who think the DoJ and FCC will approve the deal. Some sources think DoJ won't scuttle the deal, in part because T-Mobile is a fairly weak player in the current wireless industry, and isn't likely to last without a buyer. That would mean the competitive results would boil down to the conditions set by the Federal Communications Commission and the DoJ as part of their approval of the deal.
What concessions are we likely to see? My hunch is that the FCC will likely have AT&T disgorge some of the T-Mobile spectrum, might try to enforce some network neutrality provisions on the combined wireless network and could possible try to gain some kind of special access provisions from AT&T that could benefit rural carriers and Sprint. Special access fees are what operators pay to connect their towers back to the main Internet: pipes provided by AT&T and Verizon in most markets.
AT&T, T-Mobile Merger: A Regulatory Quagmire? Analysis: higher prices, fewer choices if AT&T swallows T-Mobile (ars technica)
Here's how to make your voice heard as the Department of Justice and the Federal Communications Commission review the proposed acquisition of T-Mobile by AT&T.
According to an FCC spokeswoman, the agency has yet to open a docket on the proposed deal. However, any comments sent ahead of the opening of the docket to fccinfo@fcc.gov will be held until the docket is opened and then added to the record. The Free Press recommends calling the FCC at 1-888-CALL-FCC (main FCC line) or 1-202-418-1000, which is the FCC Chairman’s office line. Another route to the FCC is through the chairman’s email form located here. The Department of Justice’s AntiTrust division can be reached via the follow phone number 1-202-307-2040 or at the AskDOJ@usdoj.gov email. It offers a complete guide to filing a complaint on its web site. Members of Congress will also hold hearings on this deal, so writing your appropriate Congressperson may also have an impact.
Want to Complain About AT&T and T-Mobile? Here’s How
An examination of AT&T's claim that "The wireless space is competitive."
"The wireless space is competitive." AT&T made the case that it operates in a "fiercely competitive" industry, and lofted praise at its competition for the work that they have done to build up a highly contested landscape. Customers in 18 of the top 20 U.S. markets would have at least four carriers to choose from even after the deal is completed, company officials pointed out. AT&T is counting regional players like MetroPCS, Leap Wireless, and nTelos as competition.
Wireless analysts noted that even if regional carriers consolidate, many industries thrive with three competitors. But the third largest carrier, Sprint, isn't exactly thriving, and many expect that the company would need a partner to survive in a world dominated even more heavily by its two bigger brothers.
"Wireless prices have fallen over past 10 years as the industry consolidated." AT&T cited the U.S. Consumer Prices Index to show that wireless prices have declined 50% since 1999. In that time, Bell Atlantic and GTE formed Verizon, SBC and Bell South formed Cingular, Sprint bought Nextel, AT&T bought Cingular, and Verizon bought Alltel.
It's true that the cost of voice services has fallen over the past decade, and even in the past year: Sprint and T-Mobile both offered attractive rates, so Verizon and AT&T slashed the prices of their unlimited calling plans by $30 in early 2010.
But what that doesn't show is how much people are actually spending on their cell phone bills. For AT&T customers under contract, spending has gone up over the past four years. AT&T's average revenue per user for postpaid customers has increased by about 3% in each of the past several years as data services have driven up users' spending. That's because customers with contracts are buying more smartphones and tablets. AT&T's revenue from accompanying data services is up a whopping 19.3% per user in 2010 and 23.7% in 2009.
Customers are undeniably getting more for their money than they were in the past. But as data traffic increases, customers keep paying more for the data that they consume. AT&T's data plans are competitive with its rivals, but several of them offer unlimited plans. AT&T doesn't. It has put caps in place that slap heavy overage charges on additional usage. Plus, wireless carriers are quietly hiking the prices customers pay for their mobile phone service.
The deal would also, very conveniently, knock T-Mobile out of the picture -- eliminating a carrier that has historically offered some of the cheapest available national wireless plans
Fact-checking AT&T's merger claims
[Commentary] The Federal Communications Commission must have given an informal blessing to the proposed AT&T|T-Mobile deal. There is a better than good chance that AT&T will make some nominal concessions in order to get the final approval from the FCC and the Department of Justice. In fact, AT&T executives have been rumored to be boasting about the nod-and-wink arrangement with FCC. It’s a shame! The impact of this deal getting approval will, more likely than not, have a huge impact on wireless prices. Why? Because on a national level, we now have two near-monopolies in control of our wireless destiny. Verizon and AT&T control roughly 70 percent of the total 296.3 million mobile phone subscribers in the US. According to comScore, Verizon has about 31.3 percent of the total market, and after this deal; AT&T will have 38.8 percent. That is 70 percent of the U.S. market. The third largest player is Sprint, with 11.9 percent of the total market.
What AT&T and T-Mobile Merger Means for Innovation
Sprint is probably going to have to be involved in consolidation. It can either be the buyer -- as it was considering with T-Mobile before AT&T won that deal, and can now look at US Cellular, MetroPCS, and/or Leap Wireless -- or it can be rolled up. These days, it's looking more like Sprint is going to be absorbed. So who might be the buyer?
- Combining Verizon and Sprint would make it the biggest U.S. wireless carrier, with 144 million subscribers as of the end of 2010. Verizon and Sprint both use the same 3G network technology -- CDMA -- so that would be a relatively easy combination, as opposed to either of them trying to combine with GSM-based T-Mobile. They currently have different 4G networks -- Sprint's through its stake in Clearwire -- and Sprint has that whole Nextel walkie-talkie network to deal with. But those problems could be figured out.
- Comcast has supposedly been eyeing Sprint for years, and now that the NBC deal is done, might be able to pounce.
- Google's best interest in the wireless industry is to remain a neutral partner, hoping that as many carriers in the world promote Android phones (and Google search/ads) as possible. But don't you think the geniuses at Google are a little fed up with how the carriers have taken Android, filled it up with crapware, and haven't done anything innovative with it? The main reason carriers even care at all about Android now is that it's a decent competitor to the iPhone, which most of them can't sell yet. How about some drastically creative services and pricing? How about something radically new that will change the way we communicate?
Who's Going To Buy Sprint Now? Verizon? Comcast? Google? Could an AT&T-Mobile lead to a Google-Sprint merger? (InfoWorld)
Telecommunications issues that pit small providers against the wireless behemoths could lose a key advocate if AT&T buys up T-Mobile.
The mega-merger would create a national wireless company of unprecedented scale by wedding the second largest wireless carrier with the fourth. That could have far-reaching consequences for several of T-Mobile's top policy issues, including special access reform, the D Block auction and data roaming — while isolating Sprint as the torch-bearer for these causes. Still, advocates are hoping the merger could assist them with telecom topics that rarely draw the limelight. They say it could reinvigorate Washington's focus on these issues and lend credence to their laments about market concentration. T-Mobile and Sprint have led the charge in asking the Federal Communications Commission (FCC) to regulate the rates smaller carriers pay AT&T and Verizon to connect their cell towers to wireline networks. "You could look at it two ways," Silva said. "There will be one less entity arguing for special access reform — you have one less voice — but the FCC will probably be looking at what can it do within the regulatory universe that could keep Sprint strong and not withering away." Proponents of automatic data roaming hope the merger will bring additional attention to their issue. T-Mobile and Sprint have traditionally advocated for the FCC to require AT&T and Verizon to enter agreements allowing mobile broadband customers to roam on their networks. T-Mobile's policy issues could resurface as conditions on the transaction. Analysts at Stifel Nicolaus wrote in a note that the merger could include special access and data roaming requirements as a way to offset increased market concentration.
Whither T-Mobile's policy agenda? Fate uncertain for David v. Goliath telecom issues
Could AT&T's purchase of T-Mobile be all about the iPhone 4G -- and, specifically, AT&T's desire to boost its network to compete with the new Verizon iPhone 4.
This of course would enable many millions more US consumers (folks tied to T-Mobile, or who prefer that network) to buy Apple's wonderphone. Those hopes were quickly quashed when T-Mobile said it will remain independent, albeit under AT&T's stewardship, for around a year, and it won't offer the iPhone to its customers in that time. But here's the thing: The joining of AT&T and T-Mobile pairs the US's second and fourth biggest cell phone networks, creating a new monster company that would be the biggest by far - -beating Verizon's approximately 300 million users by a large margin. And while AT&T and Verizon are busy pushing forward on its 4G long term evolution upgrade to bring about the next generation of mobile data phones, T-Mobile actually has the largest existing 4G infrastructure in the US. By buying into T-Mobile, AT&T is setting itself up to take the lead in the race to 4G coverage. Which suggests that, yes, this acquisition all about the iPhone 4G.
AT&T and T-Mobile: All About the iPhone 4G in 2012?