Wireless Competition Report Will Show AT&T/T-Mobile Shouldn’t Be Approved, Opponents Say

Other questions have also arisen about the merger. Among recent potential negatives, the Department of Justice in recent weeks effectively killed two mergers that would have led to more concentrated markets: NYSE/NASDAQ and H&R Block’s proposed acquisition of TaxAct.

Questions also remain about the net effect of Commissioner Meredith Baker’s departure from the FCC, since she was a strong advocate of the FCC moving quickly and efficiently to address pending mergers. Baker, in a key speech before the AT&T/T-Mobile merger was announced (CD March 3 p2), said the agency should launch a discussion of how its merger review process “has gone astray.” FCC and industry officials note that no matter what happens in the makeup of the commission, whether FCC Chairman Julius Genachowski will support the deal remains the key unanswered question. An AT&T spokesman declined to comment Friday.

"If this year’s report was the first to question the level of wireless competition, you could certainly read that as a data point on AT&T/T-Mobile,” said Paul Gallant, analyst at MF Global. “But assuming it’s pretty similar to last year’s report, I don’t think it boxes the FCC in on the merger."

"If the Wireless Bureau declines to find the industry ‘effectively competitive,’ it certainly won’t help the deal’s prospects,” said Sanford Bernstein analyst Craig Moffett. “It still leaves room for the chairman to reach his own conclusions, but it doesn’t help.”

Moffett said Baker’s departure is a wild card and among recent negative developments for AT&T. “There’s nothing definitive here, and we're still in early innings, but again, it doesn’t help,” he said. “The Meredith Baker dust-up doesn’t help. At the very least, it’s going to make everyone involved think twice about the PR fallout before they cast a yea vote. And Cox announcing that they're decommissioning their brand new wireless network is bad news as well, as it takes away another start up competitor that AT&T could otherwise have pointed to as exemplifying the vibrancy of the competitive marketplace."

Genachowski could still vote to approve the merger even if the pending report offers a negative review of the overall state of wireless competition, said Free State Foundation President Randolph May. “More important will be how the commission evaluates the marketplace evidence and characterizes the evidence in its report,” May said. Baker was “an articulate advocate of free market-oriented policies, so her absence from the commission certainly isn’t helpful to AT&T and T-Mobile,” he added. “On the other hand, at the end of the day, she just had one vote like any other commissioner."

"There are no black/white answers” to questions about the merger, said Andrew Schwartzman, senior vice president of the Media Access Project. While a competition report that draws negative conclusions about the state of the wireless industry “makes it harder to justify the AT&T/T-Mobile deal, it would be argued that whatever conditions are attached will promote competition,” Schwartzman said. “It is very hard to dope out how Baker’s departure impacts things, principally because we don’t know if and when a successor will be nominated and confirmed."

Many competitive developments in the wireless industry are positive, despite the likely negative conclusions in the competition report, said Information Technology & Innovation Foundation Senior Fellow Richard Bennett. “Sprint and MetroPCS have added customers since last year’s report by aggressively moving into 4G, so the competition landscape is better in some respects,” Bennett said. “MetroPCS offers a $60 unlimited bundle of LTE data, voice, and text that’s quite compelling and Sprint’s WiMax is selling well. Android phones have helped both of them.” A key question is “whether the FCC will give the spectrum assets they will inevitably take away from AT&T to a group of smaller networks or whether they'll try to promote MetroPCS to fourth national network status,” Bennett said.

"The report confirms that not much has changed since last year,” said Public Knowledge Legal Director Harold Feld. “While the FCC could still find ways to approve the deal if they want, they will need to work within the constraints of the report. Specifically, they would need to show how the merger avoids making the trends identified in the report as limiting effective competition worse. That would take some rather fancy footwork."

Rural Cellular Association President Steve Berry, a merger critic, said he hopes the Wireless Competition Report will raise red flags on the AT&T/T-Mobile deal. “The FCC is the expert agency, and their opinion should be an informed one,” Berry said. “We hope the commissioners act on this information and oppose the merger.” Berry said of Baker’s departure, “the balance of the impact of the proposed merger on the competitive wireless industry will remain the same -- competition will suffer."

Carri Bennett, general counsel to the Rural Telecom Group, agreed: “If [the FCC] can’t find that there’s effective competition, that means to me there’s not effective competition. That means it would be impossible for the AT&T/T-Mobile deal to go through.”

"For the second year in a row the FCC has departed with the conclusions of past reports to state the conclusions that consumers have known for years -- that there is less choice in a consolidating wireless marketplace,” said Joel Kelsey, Free Press political advisor. “Even this watered down report makes it clear that to approve the proposed AT&T/T-Mobile merger would be a clear violation of the commission’s congressionally mandated mission to promote competition in the wireless industry.”