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What is at Stake in the AT&T Acquisition of T-Mobile?

Who is supporting the deal and who opposes?

By

AT&T T-Mobile Merger

Image © Getty Image

In a bid to combine the second and fourth largest wireless telecom providers, AT&T made a bid to merge with T-Mobile in march 2011. The FCC, Department of Justice and the Attorney General of New York quickly took notice. The review by the two federal agencies is standard practice for this type of proposed merger, but neither took long to act. The New York Attorney General's review is not necessarily customary, but is being conducted to to ensure New Yorkers will not be adversely affected by the merger.

AT&T claims the merger would be beneficial because of the expanded coverage for the company's next-generation wireless network to underserved and unserved rural areas. AT&T has agreed to the sale of T-Mobile USA from Deutsche Telekom for $39 billion in cash and stocks. The total number of combined customers for the resulting super telecom provider would be 130 million people.

At stake in the deal is use of T-Mobile's AWS spectrum to add to AT&T's 700 Mhz licenses, creating a huge LTE footprint. In fact, the combined LTE footprint would be 95% of all Americans, more than 46 million more people than if AT&T did it alone. This would place the combined AT&T/T-Mobile company in a very strategically beneficial position, as the national interoperable public safety network envisioned by the Obama administration is being implemented. With President Obama's support of allocating the D-Block to public safety, the merger would pay big dividends in terms of staking a claim to the national public safety network.

Does an Interoperable Public Safety Broadband Network Have a Chance to be Built in 2011?

According to the original Deutsche Telekom press release, the proposed deal benefits consumers in the following ways:

  • Addresses wireless spectrum challenges facing AT&T, T-Mobile USA, their customers, and U.S. policymakers."This transaction quickly provides the spectrum and network efficiencies necessary for AT&T to address impending spectrum exhaust in key markets driven by the exponential growth in mobile broadband traffic on its network."
  • Improves service quality for U.S. wireless customers
  • AT&T and T-Mobile USA customers will see service improvements - including improved voice quality - as a result of additional spectrum, increased cell tower density and broader network infrastructure.
  • An additional 46.5 million Americans will have access to AT&T's latest 4G LTE technology.

    While AT&T and Deutsche Telekom are touting the benefits of the merger, New York Attorney General Eric Schneiderman wants to makes sure pricing remains competitive. "Cell phones are no longer a luxury for a few among us, but a basic necessity. The last thing New Yorkers need during these difficult economic times is to see cell phone prices rise," Schneiderman said in a new release about his review of the merger. "Affordable wireless service and technology, including smart phones and next generation handheld devices, are the bridge to the digital broadband future. We want to ensure all New Yorkers benefit from these important innovations that improve lives." His review of the proposed deal is expected to add additional time to the process. Connecticut and Minnesota are among several other states who have also indicated they will review the deal, and weigh in on any possible ramifications to their constituents.

    In June 2011, 76 House Democrats signed a letter which stopped short of full support for an AT&T/T-Mobile merger, but emphasized the benefits of the AT&T merger. The letter mentioned President Obama's broadband goals, and the benefits touted by AT&T as a result of the proposed merger. These benefits include driving investment and innovation, creating jobs, and reaching rural constituents in remote areas across the United States. Most of the House members represent constituents in rural states with lower broadband availability.

    Consumer groups and other special interest groups are taking the opposite position. Free Press, a nonprofit organization dedicated to reforming the media, wrote a letter to the FCC arguing against the merger:

    " . . . the proposed AT&T-T-Mobile merger will provide very little benefit to rural Americans and will likely cause significant harm and disruption to those same citizens. AT&T's claims to the contrary sound in opportunism and guile. We urge you to scrutinize these facts closely in considering whether this merger will truly serve the interests of the American people."

    In September 2011, the U.S. Department of Justice sued to block the proposed AT&T acquisition of T-Mobile. The antitrust challenge filed by the Obama administration was surprising because it was filed just five months after the deal was announced. The government claimed what many state attorneys generals have said about the deal: the merger of the nation's second and fourth largest telecommunication provider would harm consumers because of higher prices as a result of less competition in the marketplace.

    The T-Mobile acquisition "would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services," said James Cole, deputy attorney general.

    AT&T claimed it would be able to use towers and spectrum controlled by T-Mobile's to build out wireless broadband to unserved consumers in the United States. AT&T also bolstered it argument by saying the merger would create jobs by expanding broadband access. AT&T tried to coax the Department of Justice to approve the deal by promising to spend an additional $8 billion to grow its wireless broadband network in rural areas.The company also promised to bring 5,000 wireless call center jobs back to the United States if regulators allowed the deal to go through.

    Both AT&T and T-Mobile are hoping to settle the issue out of court, while supporters and opponents are lining up. Seven states joined the Department of Justice's federal lawsuit as the companies struggle to salvage a deal by lining up the best legal counsel they could line up quickly. If the case is not finished by September 2012, AT&T will have to pay a penalty of almost $6 billion in cash and spectrum assets.

    The FCC is also reviewing the proposed deal, and FCC Chairman Julius Genachowski has already expressed serious concerns about the merger's impact on competition. Although settling the lawsuit out of court is a possibility, the Justice Department claims that the filing is not a tactical move.

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