AT&T/T-Mobile Opponents Raised the Questions AT&T Thought They Would, Watts Says

"The review has been exactly as we expected,” Watts said. “We got a second [information] request from the Department of Justice. … That is exactly what we expected to happen,” Watts said. The usual mixture of competitors and public interest groups are opposing the deal, he said. “We would have predicted with high a degree of confidence who would have filed and what they would have said and we would have been right,” he said. “I have not been surprised by anything that’s happened in that process."

AT&T and T-Mobile remain on track to wrap up the deal in the one-year timeframe proposed in March, Watts said. Watts said he is not concerned about the Justice Department’s recent decision effectively killing the NYSE/NASDAQ merger (CD May 31 p1). “That was a two to one transaction,” he said. “There were two stock exchanges in the United States. After that closed, there would have just been one. That has no relationship to the facts we have here.”

Analysts tend to ask him the same questions over and over, he said. “The questions I get all fall in one category -- can you get it done and why do you think you can get it done,” he said. “The industrial logic of this in patently clear … It’s going to come down to can you get it closed and we obviously feel we can.” Watts said the company has submitted enough information to more than fill a medium-sized conference room at AT&T’s Washington office. “What the FCC should be asking for they did,” he said. Regulators face a tough time just analyzing all the data submitted, he conceded. “They have to work really hard and they do.”

Watts singled out Sprint Nextel, which argued in its reply comments that AT&T could solve its capacity problems by building out the spectrum it already has, moving customers to LTE faster to free up other spectrum and making greater use of distributed antenna systems and other network enhancements.

"The fundamental premise that Sprint has laid out, in terms of what we should do from a network standpoint, is flawed in every element,” Watts said. AT&T isn’t letting spectrum lie fallow -- it is now using it to build out LTE. Suggested network enhancements “are all the things we're already doing,” he said. “They're wrong on every point.” Watts, who has long experience working on mergers for first SBC and now AT&T, said he has never seen more support for a deal. “I've never done a transaction [before] where we've had 21 governors file letters” of support, he said. “We've had 10 labor unions that represent over 20 million workers.” The amount of support is “very unique,” he said.

Watts declined to say anything about possible merger conditions, the subject of several questions Tuesday. “I'm not going to sit here and predict one condition is or isn’t going to happen or could destroy the whole thing,” he said. “We're going to look at the totality of where we end up and we think we'll wrap this up."

Sprint argued in a filing late Monday that AT&T does not need T-Mobile to offer LTE service to 97 percent of the nation, a key commitment AT&T made as part of its merger filing. AT&T is only “offering to do what it would most likely do even without the merger,” Sprint said. “Put more frankly, AT&T is threatening to withhold service that it would provide under normal marketplace conditions if it does not get its way in this proceeding.”

AT&T has traditionally pursued a “growth by acquisition” strategy, “acquiring numerous wireless carriers to expand its spectrum holdings and market share,” Sprint said. That strategy can be the right one under ordinary circumstances, the carrier said. “AT&T’s proposed takeover of T-Mobile, however, is a very different kind of merger,” Sprint said. “AT&T proposes to eliminate the nation’s fourth largest carrier and capture a market share that would drive the industry toward an anti-competitive duopoly that would damage the competitive positions of all but the Twin Bells -- AT&T and Verizon."

Sprint also submitted an updated economic analysis of the merger, by Charles River Associates, this time informed by data submitted on a confidential basis by other carriers as part of the FCC’s investigation of the deal. “As a result, we conclude that the proposed merger would lead to even greater upward pricing pressure than did our previous analysis,” the analysis said.

The proposed merger is nothing more than an attempt by AT&T to increase its market share and eliminate competition, said Rural Cellular Association President Steve Berry. “Armed with an exorbitant lobbying budget, extensive alliances and the ability to retaliate against uncooperative vendors, it is clear that AT&T is working hard to convince policymakers that its proposed takeover of T-Mobile would better serve the public interest,” Berry said. “If the proposed merger is approved, every other carrier, with the exception of Verizon -- the other half of the merging duopoly, would face higher roaming rates, diminished access to cutting-edge handsets and a historically high concentration of spectrum in one carrier’s hands."

Public Knowledge said the FCC should reject the merger on the grounds that it violates Section 314 of the Communications Act, which prohibits any transaction that would “’substantially lessen’ competition either for international communication or in any related ‘line of commerce.'” Public Knowledge continued: “No one can reasonably contend that a transaction that reduces the number of possible GSM roaming partners from two to one does not ’substantially lessen’ competition.”