AT&T/Leap Expected to Bring Big Fight at FCC, Though Not on Same Level as Failed T-Mobile Deal

Public Knowledge and Free Press, strong opponents of the AT&T/T-Mobile deal, both issued statements Friday night. “After its failed attempt to merge with T-Mobile, AT&T is back again, this time trying to gobble up another competitor in Leap,” said Free Press President Craig Aaron. “This is smaller deal, but AT&T is sure to make the same false claims it tried with T-Mobile about how fewer competitors will be good for wireless customers. But this takeover would result in fewer choices, higher prices and job losses. We urge the Justice Department and the FCC to reject this latest attempt by AT&T to swallow a competitor.” PK said “AT&T already has more wireless capacity than it needs to serve its customers, and it should focus on using what it has rather than continuing to try to buy out competitors.”

Early indications are that AT&T faces a fight, though likely not on the scale of the 2011 battle, when it attempted to take out one of four national carriers. Potential opponents mentioned Leap’s role serving minority and low-income subscribers with its relatively cheap, pre-paid service, sold in many inner city stores. AT&T emphasized in its news release it plans to keep the Leap-Cricket brand alive.

"AT&T has a lot on the fire right now,” PK Senior Vice President Harold Feld said Monday. “Between the pending license swap with Verizon and concern about spectrum aggregation limits in the 600 MHz auction, I think this adds urgency to the question of competition and spectrum in a way that goes beyond the numbers here as a stand alone transaction. What this really does is place front and center: do we only care about national competition among the ‘big four,’ or do we care about other kinds of competition -- particularly with regard to Leap’s customer base among minority and low-income customers?” Feld said it also raises questions about whether any other competitor, with the possible exception of Dish Network, will emerge to take on the big four. “Leap, C Spire, and U.S. Cellular are really the only smaller players at this point that look like they could even challenge the big four on even a regional basis, or by targeting a particular niche demographic. If every time a player with a new business model that starts to gain traction gets gobbled up by one of the big four, this is going to become a much less dynamic market."

"We are evaluating the proposed transaction and will take a closer look once applications are filed,” said Steve Berry, president of the Competitive Carriers Association. “There are several areas where we have a strong and continued interest in sustaining a wireless competitive market. CCA has been on the record for some time urging the FCC to complete and re-evaluate the spectrum aggregation proceeding, so issues like spectrum aggregation, interoperability, roaming relationships and the impact such a transaction may have on smaller carriers in various markets, remains a concern. I think we will have to see the market-by-market information that is filed with the transaction. This is a good opportunity to address interoperability because some of the spectrum in this transaction is lower 700 MHz band. The trend of ever decreasing [numbers of] smaller and regional carriers, especially one that services minority and low-income populations, is an enormous concern since [a] transaction such as this one eliminates roaming partners and reduces alternative choices for carrier and consumers.”

The Rural Telecommunications Group said the proposed merger raises bigger competition questions. “Not too long ago AT&T repeatedly asserted to the FCC that ‘Leap and other regional providers are increasing competitive threats’ to AT&T” said Carri Bennet, RTG general counsel. “Yet in the few short years since those AT&T statements were made, those competitive regional carriers have all but disappeared through consolidation. So if all of these regional providers are no longer present to provide the ‘competitive threat’ to large carriers, then AT&T should at least have the courtesy to tell the Commission -- and more importantly American consumers -- who it believes will assume that role as a serious competitor.”

"I think the transaction can be cleared, perhaps subject to some divestitures/conditions,” said Jeff Silva, analyst at Medley Global Advisors. The “big question could be the context of regulatory analysis with respect to other pending AT&T transactions, spectrum screen and incentive action rulemakings” and when Tom Wheeler will be confirmed as FCC chairman, Silva said. It probably helps AT&T that the SoftBank/Sprint/Clearwire transaction was completed last week, he added. “It helps, with respect to optics and actual market spectrum consequences,” he said. “Then again, there’s no such thing as easy or smooth where transactions involving [AT&T and Verizon Wireless] are concerned.”

Free State Foundation President Randolph May said he expects the deal to be approved. “In a simplistic way, it might be nice to say that more competitors are always better than less,” he said. “But from a pure competitive analysis point of view, based on the economics of providing service in the marketplace, it’s hard to see why this transaction would be problematical. So I think ultimately it will be approved by the FCC and DOJ pretty much intact.” Still, May expects a fight. “This does not mean there won’t be parties who will want to use the transaction review process to argue for imposition of extraneous conditions that really aren’t related to the competition and consumer welfare analysis,” he said. “For example, the chief point of contention in the FCC’s review of the T-Mobile-MetroPCS merger became the plea for imposition of job protection conditions that really were extraneous to the particular transaction. Unfortunately, such pleas have become almost routine in FCC merger reviews.”

Any company purchase or deal that nets AT&T additional spectrum will “get a very tight review” from regulators, but current precedent “suggests that the deal will ultimately be greenlighted,” said Guggenheim Partners analyst Paul Gallant. “The administration has already said that AT&T and Leap are not really direct competitors.” Leap owns an average of 23 MHz per market, while AT&T owns an average of 118 MHz per market, Gallant said. The addition of Leap’s spectrum still “keeps AT&T within the ballpark of the spectrum screen,” he said.