Lobbying Intensifies Ahead of Hearing On Proposed AT&T Merger With T-Mobile

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Aggressive lobbying by AT&T Inc. and its detractors has reached a fever pitch ahead of the first Capitol Hill hearing on the company's proposed $39 billion acquisition of T-Mobile USA, with AT&T arguing that the deal will benefit consumers, in part by improving network quality and reach, and a coalition of public-interest groups and smaller wireless carriers making the case that a combined AT&T/T-Mobile would firmly “entrench” a duopoly in the wireless market.

The Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights will hold a hearing on the proposed deal May 11, titled “The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?” in a tacit reference to Ma Bell.

In a blog post responding to a flurry of activity May 10, Joan Marsh, vice president of federal regulatory affairs for AT&T, said the merger will help alleviate network congestion problems like those experienced by AT&T customers who use Apple's iPhone, a means of finally gaining the scale the company needs to roll out its next-generation wireless network, known as 4G, and to compete more effectively with Verizon Wireless, which is already deploying the 4G technology, LTE.

AT&T Touts Capacity Gains.

“The bottom line is that our merger with T-Mobile USA will offer significant benefits to American consumers,” Marsh wrote. “This merger will address serious capacity challenges on our networks; it will significantly advance this country's wireless broadband goals; it will promote competition; and it will keep America on the cutting edge of wireless broadband technologies.”

The company has already made a pre-merger-approval commitment to extend LTE coverage to 97.3 percent of the U.S. population, which it contends will move the United States closer to the goal of achieving true universal access to affordable, high-speed internet service.

AT&T's chief executive, Randall Stephenson, will seek to emphasize this point to the Senate Judiciary May 11: that the company's 97.3 percent pledge will equate to nearly 55 million more Americans covered by 4G than its pre-merger plans and “millions more than any other provider has committed to serve.”

“This transaction is all about consumers. It's about keeping up with consumer demand. It's about having the capacity to drive innovation and competitive prices for consumers," Stephenson will testify to the committee, according to a written statement obtained by BNA. “And most important, it's about giving consumers what they expect--fewer dropped calls, faster speeds and access to state-of-the-art mobile broadband internet service--whether they live in a large city, a small town, or out in rural areas.”

Sohn: Don't 'Reward' AT&T Lack of Investment.

On a conference call with reporters May 10, Gigi Sohn, president and co-founder of the public-interest group Public Knowledge, who is also scheduled to testify to the subcommittee, flatly rejected those arguments, questioning why AT&T has not invested in its 4G network sooner.

Approval of the deal by the Federal Communications Commission and the Department of Justice, Sohn says, would essentially “reward” AT&T for failing to “invest adequately.”

“Why doesn't it [AT&T] just take some of the $39 billion…the gobs of money it already has and just invest it in its networks?” Sohn said.

Merger Called Unthinkable, Unfixable.

During the call, Sohn described the merger as “unthinkable,” just as former FCC Chairman Reed Hundt did in immediate response to the merger of AT&T and SBC five years ago.

“The merger is also un-fixable,” Sohn said, refuting suggestions that conditions and asset divestitures would make the proposed merger amenable to consumers and competitors.

Participating in the same conference call, Steve Berry, president and CEO of the Rural Cellular Association, said that despite AT&T's broadband expansion commitments, neither it nor T-Mobile currently have 4G coverage.

AT&T is planning to build out its 4G network utilizing blocks of 700 megahertz spectrum. T-Mobile had lobbied Congress and the FCC to bid on such spectrum in an auction, only to experience a series of setbacks. Over the past six months, political forces have coalesced around allocating a block of spectrum in the band known as the “D Block” for the building of a nationwide emergency communications network, rather than auctioning the spectrum to commercial bidders, like T-Mobile.

Duopoly in 700 MHz Band Cited.

Of all the spectrum bands allocated for mobile broadband uses, the 700 MHz band is the most valuable to the wireless industry because of the electromagnetic properties of its frequencies. Frequencies in the band are said to travel farther and penetrate walls and windows far more effectively than existing cellular networks do, allowing wireless carriers to provide their services--particularly mobile broadband service--with far fewer cell sites.

AT&T controls 26 MHz of spectrum in the 700 MHz band, and has entered into an agreement to buy spectrum from Qualcomm in the band for $1.93 billion. That acquisition would include 12 MHz of lower D- and E-block spectrum covering 70 million people in five of the top 15 U.S. markets, and 6 MHz of lower D-block spectrum covering 230 million people in the remaining areas of the country.

Public interest groups and rural carriers, including members of the Rural Cellular Association, have lined up in opposition to the deal, warning of the consequences of just two wireless carriers--AT&T and Verizon--controlling all of the cellular and 700 MHz band licenses in most of the largest markets in the country as well as in many rural markets.

In the hotly contested 700 MHz auction in 2008, Verizon emerged with virtually all of the highly sought-after C Block. AT&T came away with 227 licenses from among the B Block of regional licenses, giving the company 12 MHz of spectrum in many of the more than 700 “cellular market areas” nationwide.

“They [AT&T] could have built it out two years ago, when they bought it. But they didn't,” Berry said. “They were waiting to control more of the market before they moved.”

New Coalition Formed to Fight Merger.

RCA, together with Sprint Nextel Corp., the Computer & Communications Industry Association, the New America Foundation, the Center for Media Justice, Public Knowledge, the Media Access Project and the Rural Telecommunications Group, launched a coalition May 10 to fight the AT&T-T-Mobile merger.

The “No Takeover Project” held its first press conference and activated a Twitter feed in advance of the Senate Judiciary subcommittee hearing, where the CEOs of AT&T, T-Mobile, Sprint, and Cellular South will each testify.

“With this transaction, policymakers face a clear choice: either (1) allow the wireless industry to continue down a path toward a duopoly made up of Ma Bell's two behemoth descendants or (2) reverse course and lay the foundation for a new era of competition in this industry,” Cellular South CEO and President Victor “Hu” Meena said in written testimony obtained by BNA.

In acquiring T-Mobile from Deutsche Telekom AG, AT&T would supplant Verizon Wireless as the No. 1 wireless carrier in the country and place Sprint Nextel, which had been linked to T-Mobile in merger rumors in recent weeks, at a distant third, spelling the end of the so-called “Big Four.”

In total, AT&T and T-Mobile would serve a combined 130 million users nationwide. Still the No. 1 and No. 2, AT&T and Verizon would control 80 percent of the United States for contract customers, with Verizon serving 96 million customers. In contrast, Sprint ended 2010 with 50 million subscribers.

In addition to the CEOs of AT&T, T-Mobile, Sprint, and Cellular South and Gigi Sohn, Larry Cohen, president of the Communications Workers of America, is also scheduled to testify to the Senate subcommittee.

By Paul Barbagallo