Divided CPUC Approves Full Scale Review of AT&T/T-Mobile Deal

The CPUC examined two alternatives, a full-scale review of the merger, proposed by Commissioner Catherine Sandoval, a former FCC staffer, and a less-extensive investigation proposed by CPUC President Michael Peevey, a former utility executive. Under Peevey’s plan, the CPUC would have filed comments at the FCC by Sept. 8 and would not consider California-specific conditions to be imposed on the deal.

Sandoval’s proposal passed the commission on a 3-2 vote. The CPUC also took broad comment on the merger, with speakers on both sides coming forward.

Sandoval said the merger is likely to drive up prices for backhaul services in California. “California has California-specific rules regarding intrastate backhaul services and we need to examine whether or not this merger would affect those California specific rules and how it would affect Californians,” she said. Peevey’s proposal also asks the CPUC to act too quickly, without being able to examine comments collected by the CPUC. “This puts the decision before the comments,” she said. “It doesn’t adequately give us time to analyze the public comments on the proposed decision.” The CPUC also has a responsibility under state law to examine whether telecom mergers are in the public interest, Sandoval said.

"While there may be some that argue that the effects of the merger may be different in California … the reality is that the effects of the merger are going to be realized by the nation as a whole,” Peevey countered. “Any appropriate conditions should be set at the national level.” Peevey warned that the review sought by Sandoval could lead to the CPUC getting “bogged down in a lengthy and perhaps unproductive process."

"We hope this action sends a message to the FCC,” said Greenlining Institute General Counsel Samuel Kang. “The last time it reviewed a major merger, between Comcast and NBC-Universal, the FCC never held any public hearings in California, home to two of the nation’s largest media markets. This time, the FCC needs to get out of its Beltway bubble and hear from the public.”

Twenty state commissions examined AT&T’s buy of BellSouth five years ago, Quinn noted. State reviews are unlikely to slow down the approval process, he said. “Any analysis of this deal is just going to provide [the CPUC] with more data on understanding what the benefits of the transaction are to the citizenry of California,” he said. “Wireless is a federally regulated service. There’s a certain amount of state preemption. … Once they look at it they're going to really understand what the benefits are."

"It will be a very extensive pleading,” Quinn said of its opposition. “We're going to spend an enormous amount of time … particularly at the outset, discussing from our perspective the enormous amount of support and the broad array of support that we've gotten.” Labor unions representing 16.8 million workers, as well as civil rights, disabilities, rural and environmental groups, high-tech companies and governors from 15 states all have filed in support, he said.

The filing takes on arguments by opponents that AT&T is hoarding spectrum, explaining how the company uses its spectrum and how the 700 MHz licenses it proposes to buy from Qualcomm will fit into its portfolio, Quinn said. Merger opponents focus on AT&T’s slow pace in using its 700 MHz and AWS spectrum, he said. “That’s where the LTE build is going,” he said. “If we used that spectrum to supplement our 3G network or our 2G infrastructure we wouldn’t have any spectrum to build LTE on at all."

T-Mobile has deployed its AWS-1 spectrum for its 3G service, said AT&T Vice President Joan Marsh. “They have deployed that spectrum, but as a result they have no path to LTE, they have no spectrum available,” she said. “That puts them at a huge competitive disadvantage. … You have to make choices about spectrum. We made them.”

AT&T will also submit a study offering a model of the amount of capacity that will be created in various markets as a result of the purchase, Quinn said. “Some of those numbers, I think, are pretty eye opening. … In New York, for example, the near term capacity is going to increase by 60 percent.” AT&T will see similar increases in capacity in other markets as well, including many rural markets, he said. The filing will argue that the “likely result” of adding capacity will be lower prices for wireless service, he said.

"We spend a lot of time addressing the argument of whether or not we could have achieved these types of gains on our own without this merger,” he said. “We spend a good deal of time talking about the efforts that we have made using distributed antenna systems, using Wi-Fi hotspots or hot zones, and building celltowers.” The filing also offers extensive comments on the benefits of bringing broadband to rural America, Quinn said. AT&T now covers less than 20 percent of the nation’s land mass, but will cover 55 percent post-merger, the filing states, he said.

Quinn said AT&T would strongly oppose any merger conditions aimed at making new handsets available to its competitors, a demand of small carriers. “We think handset exclusivity issues are overblown in this market,” he said. “We have always opposed government regulation of things like handset exclusivity. We continue to oppose it. We don’t see that this merger exacerbates any of those issues whatsoever."

Asked about the Department of Justice’s review of the merger, Quinn said AT&T filed many documents at the department since late March. “We're just kind of going through the process of the interviews with them, sitting down with them, going through documents,” he said. “I think it’s too early to draw any conclusions about what’s going on there.”

Quinn had a similar response on the outlook at the FCC. “Like all of this stuff, I think it’s too early to tell,” he said. “As they go through these documents and they understand the responses that we have to the issues that were raised … in the oppositions, I'm pretty confident that the FCC is going to see that there’s an enormous amount of benefit to this transaction.” AT&T remains hopeful of a unanimous vote by commissioners approving the deal, he said. Quinn also said AT&T understands that DOJ and the FCC will order some divestitures. “We'll work through issues with them on a market-by-market basis,” he said.

AT&T will continue to build support for the deal, Quinn said. “We're taking out a lot of ads to explain to people what the benefits of this transaction are and I think we're going to continue to do that,” he said. “This is a marathon, not a sprint, when it comes to regulatory reviews in Washington, D.C.”