Senate Scrutinizes AT&T/T-Mobile - Broadcasting & Cable

Senate Scrutinizes AT&T/T-Mobile

Judiciary's antitrust subcommittee looks at spectrum crunch, competition
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It was not exactly all the king's horses and men, but legislators and industry players gathered on the Hill Wednesday for "The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?," a hearing in the Senate Judiciary Committee's antitrust subcommittee on AT&T's proposed purchase of T-Mobile.

Among the issues scrutinized was the degree to which a spectrum crunch was driving the deal, and how competitive a marketplace would remain.

Randall Stephenson, AT&T CEO, pitched the merger as an elegant solution to the administration and FCC's challenge of extending wireless broadband to 98% of the country, or at least the 97% that AT&T says the deal would allow it to reach with 4G (LTE) wireless service.

He said the wireless marketplace was competitive, pointing to regional facilities-based competitors in most markets--MetroPCS, Cricket and Clearwire, for example--and argued that T-Mobile was not a principal competitor, or at least not one it was focused on, given T-Mobile's sub losses vs. gains by many others.

Stephenson said the deal was about giving consumers better service. He said the industry was growing and the only thing that could stifle that is lack of capacity. He quoted FCC Chairman Julius Genachowski on the consequences of not addressing the spectrum crunch, which would be higher prices and frustrating service. He said the spectrum crunch was a reality and that acquiring the complementary holdings of T-Mobile would lead to better service, fewer dropped calls, faster Internet and, since capacity was what had kept prices down, lower prices, at least if past were prologue.

Opponents of the deal, including Daniel Hesse, Sprint CEO; Gigi Sohn, Public Knowledge president; and Victor "Hu" Meena, CEO of Cellular South, said the deal would stifle innovation and effectively reconstitute the old Ma Bell of wireline into the new Bell duopoly sisters of wireless. They said the crisis crunch was either overstated or not on point.

Meena said if the deal were allowed to go through, the government needed to be prepared to "regulate every aspect of the duopoly."

The key issues with legislators were many. They included: (1) how pro-competitive and pro-consumer a deal would be that reduced the major national wireless competitors from four to three, and would give the top two, Verizon and a combined AT&T and T-Mobile, 80% of the subs and 42% of the revenues;( 2) how competitive those regional competitors actually were given they had to make roaming deals with the big players; (3) what the effect would be on prices of AT&T buying a company that advertised itself as a lower-price option; and (4) whether AT&T really needed the additinoal spectrum from T-Mobile to achieve a 97% LTE buildout.

Hesse of Sprint, the third largest carrier behind AT&T and Verizon, warned that if the deal went through, it would be a return to an era of duopoly control and less innovation. Sohn illustrated the point by holding up a clunky early-generation cell phone to suggest the past to which the industry could be returning. Hesse also warned that it was conceivable Sprint might have to eventually sell out to Verizon or AT&T. "Yes, we may go from three to two," he said.

Both Stephenson and Phillipp Humm, T-Mobile president, said that without the merger, T-Mobile would not be able to roll out an LTE network, lacking both the spectrum and the capital, but that together, it was possible.
Humm painted his company as one that was losing subs and without the resources or the plan to invest in next-generation wireless.

Hesse and Sohn both challenged AT&T on claims of lack of spectrum capacity. Hesse said AT&T was warehousing spectrum, while Sohn said AT&T could take steps to put together 20 MHz of contiguous or technologically aggregated spectrum without having to buy T-Mobile's spectrum.

Stephenson countered that the combination of low-band spectrum it had with T-Mobile's higher band would allow it to go to rural areas where it did not have enough spectrum to cover that land mass.

Herb Kohl (D-Wis.), chairman of the antitrust subcommitte, was clearly skeptical that the deal would not lead to higher prices and less competition, and said as much. That sentiment was echoed by Sen. Al Franken (D-Minn.), who said he expected the deal to lead to job losses and higher prices, and urged Kohl to hold more hearings after more data had been collected on the impact of the deal.

Ranking member Mike Lee (R-Utah) countered that he saw the deal as potentially furthering the crucial policy goal of the wireless broadband build-out, though Kohl argued the deal should be viewed as a business deal rather than painted in public-policy terms. Hesse he didn't think the deal would further that goal and, even if it did, would come at too high a price of reducing competition in the market.

Lee said that with the two companies' complementary cell sites, spectrum holdings and compatible networks, the combo could wind up being consumer-friendly, increasing efficiencies and data speeds.

In addition to Stephenson and Humm, also advocating for the deal was Larry Cohen, president of the Communications Workers of America. He said the deal would be a boost to jobs, the economy and the rollout of broadband to rural America.

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