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AT & T Deal Sparks Competition Debate

By Staff Author | March 21, 2011

AT&T’s planned $39 billion merger with T-Mobile USA could draw considerable scrutiny from antitrust regulators and lawmakers who are already keeping a close eye on increased consolidation within the wireless industry.

Congressman Ed Markey (D-Mass.) has called for hearings on the deal. Markey, a senior member of the House Subcommittee on Communications and Technology, said in a statement that he intends to evaluate the merger for its effect on “consumers, competition and choice.”

“While AT&T and T-Mobile have determined that the merger is in their corporate interests, it must also be in the public interest,” Markey said. “We should hold Congressional hearings to fully assess the effects of this proposed merger, and I look forward to actively participating in them with my colleagues.”

Sprint is also asking the FCC and Department of Justice (DOJ) to look into the deal.

“If approved, the merger would result in a wireless industry dominated overwhelmingly by two vertically-integrated companies that control almost 80 percent of the U.S. wireless post-paid market, as well as the availability and price of key inputs such as backhaul and access needed by other wireless companies to compete,” Sprint said in a statement. “The DOJ and the FCC must decide if this transaction is in the best interest of consumers and the U.S. economy overall, and determine if innovation and robust competition would be impacted adversely and by this dramatic change in the structure of the industry.”

AT&T may be required to divest assets or spectrum in certain markets to alleviate antitrust concerns and could be forced to agree to limit device exclusivity arrangements and near-term price hikes on wireless services, analysts say.

“If history is any indication, the combined entity is likely to be forced to divest its positions in markets where it either has more than 50 percent market share in terms of subscribers or where it has a spectrum position that could be viewed as anti-competitive,” says PRTM Director Dan Hays, who gives the deal a 50 percent chance of getting approval.

AT&T is the second largest carrier in the country and T-Mobile is the fourth largest. When combined, AT&T and T-Mobile would become the largest carrier in the country, surpassing Verizon Wireless, which has 94.1 million customers. AT&T has 86.21 million wireless subscribers, excluding connected devices. T-Mobile has 34 million subscribers.

AT&T will likely face similar divestiture requirements as Verizon Wireless did when it acquired Alltel in 2008, Hays says. Verizon was forced to divest 2.1 million Alltel customers in 105 markets to get FCC and DOJ approval for that deal. Hays also says that the FCC may use the merger as a way to force AT&T to concede to net neutrality regulations for its wireless services, which are largely exempt from its current open Internet rules, as well as possible limitations on device exclusivity deals, which rural operators have long targeted as anti-competitive.

AT&T alluded to possible regulatory hurdles in the announcement of the deal. The company called the U.S. wireless industry “one of the most fiercely competitive markets in the world” and said it “will remain so after this deal.”

AT&T cited a report showing that there are at least five wireless providers in 18 of the top 20 U.S. local markets, as well as research from the U.S. General Accounting Office (GAO) which found the inflation-adjusted average price for wireless services declined 50 percent from 1999 to 2009. Five major wireless mergers occurred during that 10-year period.

However, reports from the FCC have been less optimistic about the state of competition in the wireless industry. Last May, the FCC found that the wireless industry was getting less competitive in its annual Mobile Wireless Competition Report.

Analyst Mark Lowenstein believes deal between AT&T and T-Mobile will pass, but might require the FCC and DOJ to re-evaluate the way they look at competitiveness in the wireless industry.

“If they look at it through the historical prism of how they look at wireless – the number of vendors, competition in each market – they might have some difficulty with it. I really think the DOJ, which will rely on the FCC’s findings, has to change its thinking about what the wireless industry is,” Lowenstein says. “It’s not just about mobile services – it’s about mobile computing devices and the growth of data in the network. In the current structure, it’s been very difficult for operators to achieve [growth] despite the amount of money spent on CapEx.”


Filed Under: Carriers

 

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