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FCC Staff Outlines Reasons To Deny AT&T Merger

12/05/2011 12:01:00 AM Eastern
WASHINGTON – The proposed merger of AT&T and T-Mobile would likely raise prices for consumers, reduce incentives to innovate, deliver less choice in handsets and services, and lead to a loss of direct and indirect jobs, a Federal Communications Commission (FCC) staff report contended.

AT&T could also likely reduce its capacity constraints faster and at less cost if it took measures other than a $39 billion merger, which would result in unprecedented concentration in the wireless industry, the report added.

Details in the report could be used by the Justice Department in its federal lawsuit opposing the merger on antitrust grounds. A trial begins in February.

The FCC made the voluminous staff report public after AT&T temporarily withdrew its merger application after FCC officials disclosed the report’s conclusions without disclosing the report itself.

After the report was announced, AT&T said it plans to take a $4 billion charge to cover the breakup fee that it would owe to T-Mobile in the event the deal falls through. The charge includes spectrum that AT&T would hand over to T-Mobile as part of the break-up fee.

For its part, AT&T fired back, with senior executive Jim Cicconi contending that the staff report “is so obviously one-sided that any fair-minded person reading it is left with the clear impression that it is an advocacy piece, and not a considered analysis.”

In AT&T’s view, he said, “the report raises questions as to whether its authors were predisposed.” The report “cherry-picks facts to support its views and ignores facts that don’t. Where facts were lacking, the report speculates, with no basis, and then treats its own speculations as if they were fact.”

In reaching its conclusions, the FCC staff noted that a merger would:

• “confer a unilateral incentive” on rivals to raise prices without explicitly colluding;

• yield cost savings to AT&T that won’t likely be passed onto customers;

• result in the loss of a carrier that was a significant disruptive force in the wireless market because it often led the industry in pricing and technical innovation;

• “make it more difficult for providers other than the merged AT&T and Verizon Wireless to access as sufficient a range of cutting-edge handsets in the future”;

• likely lead to a loss of carrier-direct jobs and jobs indirectly created by the carrier, in contrast to AT&T assertions that the merger would create jobs; and

• not lead to AT&T’s expanding its 4G LTE network to more markets than it otherwise would have, given that AT&T has always rolled out new technologies throughout its footprint and would likely do so again because Verizon has promised to roll out LTE to 97 percent of the population.

If the market consolidates to three national players, the staff report said, regional carriers would not provide a level of competition cited by AT&T because the nation’s five regional carriers combined account for only 6 percent of subscribers and industry revenue. None of the regionals individually covers more than 34 percent of the U.S. population, and they do not have the spectrum capacity to roll out 4G services that would match the speeds of the national carriers’ 4G networks, the report added.

The staff report also cast doubt on AT&T’s claims that a merger was needed to reduce capacity constraints experienced by both T-Mobile and AT&T in various markets.

AT&T could, the report said, take steps to reduce capacity constraints without a merger by rolling our spectrum- efficient 4G LTE devices faster and taking off-line more of its less-efficient 2G spectrum. That spectrum is still used by some voice subscribers as well as by M2M applications such as vehicle telematics and info services delivered to portable navigation devices (PNDs) and navigation systems.
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