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Senators Wary of AT & T, T-Mobile Deal

Wed, 05/11/2011 - 12:51pm
Maisie Ramsay

Lawmakers from both sides of the aisle voiced concerns about the effect of AT&T’s merger with T-Mobile USA at a Senate hearing on the acquisition, but stopped short of calling for an outright block of the deal.

Senator Herb Kohl (D-Wis.), who led the Wednesday hearing, said in his opening remarks the merger would have “profound implications” for consumers, and questioned whether the industry would remain competitive if the deal were approved.

Kohl asked AT&T President and CEO Randall Stephenson several pointed questions about how the industry would remain competitive with AT&T and Verizon Wireless dominating the market.

“The burden will squarely be on AT&T and T-Mobile to convince us why this merger is desirable, how it will benefit consumers, and to put aside our concerns that it may very well harm competition,” he said.

Stephenson also faced a barrage of questions about whether the deal would raise prices for T-Mobile’s customers.

Senator Amy Klobuchar (D-Minn.) asked Stephenson whether AT&T customers would be able to switch over to T-Mobile’s lower rate plans, which tend to be cheaper, if the merger were approved. 

Stephenson did not provide a yes or no answer to the question, saying only “If they wanted T-Mobile’s pricing plans, they’ve had those options for a long time.”

Sen. Klobuchar also asked whether T-Mobile’s prepaid customers could stay on their plans, and whether T-Mobile’s customers could keep their rate plans if they upgraded their phone.

Stephenson said T-Mobile’s prepaid customers could stay on their plans and issued a cautious reply to the question of handset upgrades, saying if customers were able to get a comparable phone from AT&T, they would be able to keep their rate plans.

Senator Mike Lee (R-Utah) pressed AT&T to explain why it needed to acquire T-Mobile to increase capacity when it had yet to deploy services on some of its spectrum holdings, including the 700 MHz band.

“Could you tell us why you have yet to fully utilize your spectrum holdings and now you're seeking to get more?” asked Sen. Lee.

Stephenson replied that AT&T planned to use the spectrum for its LTE network, which is currently in the process of being deployed.

T-Mobile President and CEO Phillip Humm testified that the company would be unable to grow without the merger, since it lacked the spectrum to deploy LTE and its parent company, Deutsche Telekom, was reticent to invest further in its U.S. subsidiary.

AT&T says its merger with T-Mobile will increase its network capacity and allow it to meet its subscribers’ demand for mobile broadband services at a time when new sources of spectrum remain scarce.

Lawmakers appeared skeptical about several of AT&T’s justifications for the merger. If approved, AT&T would become the largest wireless operator in the country. AT&T and Verizon Wireless would also have a combined market share of about 80 percent, giving them a near-duopoly hold on the U.S. wireless market.

Sen. Kohl called AT&T out on the seeming contradictions in its argument for the deal.

AT&T asserted that T-Mobile is not a close competitor in both its testimony before the Senate and public interest statement with the FCC, while simultaneously citing several regional operators, including MetroPCS, Leap and Cellular South, as proof that the marketplace would remain sufficiently competitive if AT&T’s merger with T-Mobile went through.

“You both sell cell phone service on a national basis,” Kohl said. “Is it really credible to sit here and tell us T-Mobile isn’t a close competitor?”

Stephenson replied that T-Mobile was “not our competitive focus.”

Stephenson’s statement didn’t go over well with Public Knowledge’s feisty co-founder Gigi Sohn, who also testified at the hearing. “Saying a behemoth like AT&T competes against Cellular South… is like saying Walmart competes against mom-and-pop stores,” Sohn said.

The question of whether the U.S. wireless market was headed toward a duopoly also loomed large, with witnesses opposed to the deal testifying that AT&T’s merger with T-Mobile marked a return to the Ma Bell days.

“I fear that – if approved – the merger would take us just one step away from the monopoly market we had under Ma Bell,” said Senator Al Franken (D-Minn.)

Hesse said Sprint would be considerably weakened if AT&T’s buyout with T-Mobile was approved. “It does make us more of a takeover target over time,” he said.

However, when asked by Sen. Lee whether Sprint would remain a viable company if the government approved AT&T’s acquisition of T-Mobile, Hesse said the deal wouldn’t necessarily cause Sprint to fail. “I never said it wouldn’t survive,” Hesse said.

AT&T was also questioned about potential job losses. Stephenson conceded that the company would cut jobs in areas where AT&T and T-Mobile overlapped, but said AT&T would work to re-employ those workers in areas of the company that were hiring.

CWA President Larry Cohen, who is in favor of AT&T’s acquisition of T-Mobile, said he would like to see regulators impose some conditions on the deal to keep job losses to a minimum.

AT&T’s plan to provide LTE to rural areas if its merger with T-Mobile is approved also came under close scrutiny. “Knowing how slowly things have moved in the past, you’ll forgive me if I’m a bit skeptical,” said Senator Patrick Leahy (D-Vt.). “I want assurances that if this merger goes through, AT&T is going to follow through.”

Sen. Leahy asked AT&T to provide written assurances that it would provide customers in rural areas with LTE service. The state of Vermont is sparsely populated and AT&T’s wireless coverage there remains spotty.

When pressed by Sen. Kohl, Stephenson said AT&T was willing to agree to conditions barring it from using money from the Universal Service Fund to expand its LTE network in rural areas.

AT&T wants regulators to evaluate its takeover of T-Mobile on a market-by-market basis, instead of on a national scale, and has argued that the deal will benefit nationwide availability of mobile broadband services.

This drew criticism from Sen. Kohl, who pointed out that AT&T asked regulators to review two prior mergers from a national perspective. “You've almost argued that what you're here to do today is in national interest,” Kohl said. “This is a business deal to make you more profitable. We should discuss it in that context.”

Stephenson defended the way AT&T presented the merger to regulators, saying the FCC and Department of Justice consistently evaluated deals on the local level.

AT&T also had to answer questions about special access, handset exclusivity deals, data roaming and lack of interoperability on the 700 MHz band after Cellular South President and CEO Hu Meena testified on the issues.

Meena’s testimony brought some much-needed comic relief to the proceedings. When Meena complained that Cellular South had been unable to secure a roaming agreement with AT&T for a GSM property in Alabama, Stephenson invited him to talk about it after the hearing.

Even with Meena saying AT&T’s merger with T-Mobile was “bad for consumers, bad for jobs, bad for innovation and the economy,” it appears that the two companies left with something to talk about. 

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