ATandT, T-Mobile Must Prove that Deal is Good for Americans: Senators

A Senate subcommittee hearing on the AT&T, T-Mobile merger charged the two with proving that Americans have no reason to worry about reduced cellular competition.

Executives from AT&T and T-Mobile have been put in the arguably awkward position of needing to convince a Senate committee that AT&T's proposed $39 billion purchase of T-Mobile would be not only an incredibly lucrative business deal for the two but that it also would benefit American consumers.

AT&T President and CEO Randall Stephenson and T-Mobile President and CEO Philipp Humm both defended the deal while testifying before a Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights hearing titled, "The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?" However, also testifying were Sprint CEO Dan Hesse-a vocal opponent of the deal-and Cellular South President and CEO Victor Meena.

The big egg in question was AT&T, which once had a communications monopoly before the government forced it to break up. AT&T's proposed purchase of T-Mobile, it is feared-and has been argued by Sprint's Hesse, among others-could potentially create a duopoly, with AT&T and Verizon controlling the vast majority of the cell phone market and consequently slowing innovation while hiking up prices.

In his opening remarks, Sen. Herb Kohl (D-Wisc.), who chaired the hearing, said the burden of proof-to explain why the deal is desirable for Americans, and why we should "put aside our fears" regarding damage to competition-fell squarely on the shoulders of Stephenson and Humm. He added:

"Just a few years ago ... consumers had the choice of no fewer than six major national cell phone companies, and as a result, aggressive competition led to declining prices and to the roll-out of ever-new services. Today, the situation is quite different. This deal would leave us with only three national companies, two of whom, AT&T and Verizon, would control nearly 80 percent of the market. And there are real fears that the third, Sprint, will itself be sold to one of the two, and we would be left with just a cell phone duopoly.An industry that was once a monopoly owned by AT&T in the last century is in danger of reverting to a duopoly in this new century. So, we must ask, is putting the control of such a vital economic sector relied on daily by million of people in [the care of] just two or three companies good for our country?"

Stephenson came out of the gate declaring, in his written testimony that "this transaction is all about consumers."

He argued that consumers want fewer dropped calls, faster speeds, access to state-of-the-art mobile broadband service-both at home and when they travel-and the transaction would help to achieve this. He also argued, in his statement, that smartphone, tablet and high-definition video use are driving the need for greater spectrum.

"We estimate that in 2015 we will carry the same amount of mobile data traffic by mid-February that we carried for the entire year in 2010," he wrote. "Just about the only thing that can slow down this cycle of innovation, investment and growth is lack of capacity to meet this demand-and that's why there is such a focus on spectrum. The mobile wireless industry needs more spectrum and soon."

Humm, in his remarks, took a different tact, essentially arguing that T-Mobile is about to go belly up; it has faced revenue declines for two consecutive years, he said, and subscriber losses remain the number one concern, and its spectrum holdings won't allow it to launch a 4G LTE (Long-Term Evolution) network. Being folded into AT&T, he added, would provide T-Mobile customers with coverage improvements, near-term network-quality improvements, access to LTE service and lower prices-as a result of the combined companies' increased capacity leading to reduced costs.

Regarding the question of reduced competition, Humm added that 75 percent of Americans "live in areas contested by at least five facilities-based wireless providers."

The definition of true competition-which reportedly had Stephenson and Humm uncomfortably wriggling in their seats-was also touched on by Hesse, in his written testimony:

"AT&T argues that there will be adequate competition after its acquisition of T-Mobile by pointing to regional and local competitors, such as niche prepaid carriers, MetroPCS and Cricket. These smaller prepaid companies provide a viable option for a limited group of customers, principally those who want a low-cost phone with fewer options and features, and whose use is primarily in a limited geographic area. However, these smaller prepaid companies will not be able to keep the Twin Bells from raising prices for the vast majority of consumers who want robust wireless-device options, a national footprint and continued innovation."

Jumping in on the issue of competition, and insisting that the true playing field is a national, not local, one, Gigi Sohn, president and co-founder of Washington-based Public Knowledge, rhetorically asked if anyone had ever seen AT&T advertise against MetroPCS or Cricket.

"Clearly, saying that a behemoth like AT&T competes against [Cellular South], U.S. Cellular or Cricket is like saying that Walmart competes against the mom-and-pop stores," she said. "This is an unprecedented merger."

Hesse in closing remarks emphasized that 99.7 percent of Sprint's customers were on national plans, that its handset deals are national and that it sells more in national retail chains than in its own stores. "If this isn't a national business," he said, "I don't know what is."

To the question of whether Americans will benefit, Hesse, in his written testimony, suggested that Stephenson and Humm are simply players in a bigger game, and that, of course, the goal of every corporation is to maximize shareholder value.

"I respect Randall Stephenson and Philipp Humm. They are doing their jobs, maximizing value for their shareholders," Hesse said. "Unfortunately, there are only three beneficiaries of the proposed transaction: the shareholders of AT&T, Verizon and the sole shareholder of T-Mobile USA, Deutsche Telekom."

Far from reaching any conclusions, the hearing was one of many sure to take place in a process that it is estimated will take more than a year.