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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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