AT&T Under FTC Scrutiny for T-Mobile Merger

Editors Notes:

(1)  Both the proponents and the opponents of the merger should note that neither the FTC  nor the DOJ can utilize any information  from a third party unless the said party meets the requirements of the Data[Information] Quality Act .

(2)  Federal Communications Commission Chairman Julius Genachowski told CNBC Tuesday:  Competition and AT&T’s  market share will be one of the major factors in approving the telecom firm’s proposed $39 billion merger with Deutsche Telekom’s  T-Mobile.

The following article was published on Internet Industry Watch.

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Posted by Kevin Ford on Apr 12th, 2011    

(INARIUS) – AT&T is looking to take over T-Mobile for a price tag of $39 million. If successful with this bid AT&T will become the country’s largest mobile carrier, surpassing even Verizon. On May 11th the US Senate will convene on the matter to discuss whether the merger would violate anti-trust laws and reduce market competition.

The FTC will be watching the merger closely as the new mega-carrier would hold 43% of cellphone market share, which may infringe on price fixing rules and other consumer protection mechanisms.

The last time the FTC watched AT&T this closely was back in the 1980s when they broke up AT&T’s local phone service monopoly in a move dubbed the Bell System divestiture, in which they found that the company (which has changed much since then) had violated anti-trust laws.

Activist groups like Save The Internet fear possible collusion, as the post-merger communications map would have just two companies, AT&T and Verizon, controlling 80% of the wireless airwaves — which has great potential for systemic abuses. Other companies oppose the merger as well — including Sprint, which would be relegated to the sidelines. “I do have concerns that it would stifle innovation and too much power would be in the hands of two,” says Sprint CEO Dan Hesse.

The most prominent issue would be price fixing in the mobile plan market, of which AT&T and Verizon would control the lion’s share. Sprint, T-Mobile and the like had carved out a niche market to control the two giants with their lower cost cell phone plans, which are on average 20% cheaper. The average AT&T customer is paying $63 versus T-Mobile’s customers who are paying just $52 on average. According to J.D. Power and Associates, the revenue taken in by wireless carriers from average wireless plan sales has risen from $39.43 in 1998 to over $49 per user in 2010.

There are those who support the T-Mobile merger, including Jeffrey Silva, Senior Policy Director at telecommunications consulting firm Medley Global Advisors group. Silva told PBS in an interview that he supports the decision because “the combined companies have vowed to extend coverage to areas where it’s economically not feasible right now. And with the added spectrum, service quality could increase as well. And residents who have never had an iPhone, haven’t had access to an iPhone or iPad, they will gain access,” and that “as far as whether prices go up or down, the trend in the wireless industry has been to date that even as there has been increased consolidation, prices have come down. That doesn’t mean that trend will stay that way, but that’s been the trend in the past decade.”

Another fear from the merger is that it will cause a massive loss of jobs for the 40,000 Americans employed by T-Mobile — a job loss at a time when the U.S economy is already only beginning to recover jobs lost during the recession.

Handset manufacturers are remaining oddly silent regarding the deal, possibly out of fear of angering their largest client, noted the Wall Street Journal; AT&T, some allege, has a history of stifling phone technology innovations: It crippled features like WiFi and blocked applications like Google Voice and Slingbox from making it to handsets.

Those who are pro-net-neutrality see the possible merger as a blow to the already weak net neutrality laws, which were not applied to wireless carriers thanks to the fierce lobbying from AT&T and Verizon. The merger will place even more power in the hands of the two wireless companies and give them gatekeeper-like power to limit access to their customers by applications and companies deemed unfit.

“Such high wireless market concentration raises serious potential net neutrality concerns that should be addressed. The largest mobile network in the nation must not be allowed to limit access to content in a discriminatory manner,” says Sen. Dick Blumenthal, a supporter of net neutrality.

AT&T defends the merger with the position that they are acquiring T-Mobile in order obtain much-needed wireless spectrum to cover the needs of data-hungry devices like the iPhone and Blackberry. AT&T CEO Randall Stephenson vehemently defends this position when he says that “AT&T has been at the leading edge of mobile data growth on our network as a result of supporting more smartphones, more tablets, more e-readers than anyone else in the country…[and] this has created an urgent need, an ongoing need, for significantly more spectrum to support this explosive demand.”

Silva believes that price controls will not be an issue due to the precedent set in the last decade and also due to the fact that the FCC has a solid track record of extracting concessions from broadband companies — wherein companies are required to continue low-cost pricing tiers for a set number of years. He also believes that for the AT&T and T-Mobile merger to be approved by the FCC, AT&T would need to make a similar concession.

There are people challenging this position, however — like Derek Turner, Research Director at the public interest group Free Press, who believes that “the notion that there’s a spectrum crisis has been greatly exaggerated for (the) political purposes of a few select companies like AT&T.”

AT&T has not revealed exactly how much spectrum it owns and what portion has been used but industry experts believe that the acquisition of T-Mobile will not add any significant amount of spectrum to their portfolio, as most of T-Mobile’s spectrum is already in use serving their customers.

AT&T will need additional spectrum, though, when they upgrade a majority of T-Mobile’s client base to data-hungry smartphone devices; AT&T has publicly announced their commitment to have LTE handsets in the hands of 95% of the American public. Those handsets would run on data-consuming 3G and 4G networks, increasing the need for spectrum. T-Mobile may or may not provide AT&T enough spectrum through the merger to offset the LTE handsets — AT&T may have to spend even more money in the upcoming 500 MHz spectrum auction that should be announced soon by the FCC.

The FCC and the Department of Justice will be scrutinizing the T-Mobile purchase by applying the Hirshman Index — a formula designed to determine the concentration and effect of monopolies — to the merger, and determine whether it will violate anti-trust and free competition laws. Currently rural markets are pushing the telecommunications company index higher than the FCC would like, but since T-Mobile does not have a strong presence in the rural market the divestiture likely have little to no affect on the index.

The FCC and DOJ will scrutinize not so much the size of the companies involved but whether the companies have a solid track record of bringing innovation to the market, and whether the market needs increased competition to remain innovative enough to compete with highly innovative Asian economies.

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