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Posted at 02:15 PM ET, 07/20/2011

Senate panel chairman Kohl: AT&T, T-Mobile merger should be blocked

Democratic Sen. Herb Kohl (CHRIS KLEPONO - BLOOMBERG NEWS)
The chairman of the Senate antitrust subcommittee on Wednesday called for regulators to block AT&T’s $39 billion bid for T-Mobile, saying the union would harm consumers and competitors and violate antitrust law.

Sen. Herb Kohl (D-Wisc.) said in a letter to the heads of the Justice Department and Federal Communications Commission that wireless industry competition is particularly important as Americans have come to rely on mobile devices as a primary tools for communications.

The merger would put 80 percent of all cell phone contracts into the hands of AT&T and Verizon Wireless.

Kohl is the first of influential lawmakers to say the deal should be rejected. In contrast, Kohl did not oppose Comcast’s joint venture with NBC Universal. He is retiring from the Senate next year.

He said that acquisition of T-Mobile — a lower-cost competitor to the three biggest national carriers — would end up costing consumers.

“It will likely tend to substantially lessen competition, lead to consumers paying high prices with fewer choices, as well as lessen the innovation that has been the keystone of this industry in the last decade,” Kohl said in his letter to Attorney General Eric Holder and FCC Chairman Julius Genachowski.

“It is my judgment that this acquisition in such a vital consumer service should be blocked by your agencies as contrary to antitrust law a nd not in the public interest under communications law,” he wrote.

AT&T responded in a statement that Kohl’s letter, “ignores the many positive benefits and numerous supporters of the transaction. This is a decision that will be made by the Department of Justice and the FCC under applicable law and after a full and fair examination of the facts. We continue to believe those reviews will result in approval of this transaction.”

Kohl’s conclusion came in a seven-page letter explaining in great detail his analysis of how the national wireless market — dominated by four carriers — would be affected by the merger. AT&T has argued that regulators should include regional carriers in their analyses of competition, citing the success of Metro PCS and Leap Wireless.

But Kohl rejected that reasoning, saying local competitors have many disadvantages to national carriers.

Local competitors rely on roaming contracts with national carriers. The smaller carriers don’t have the best devices on their networks — such as the iPhone — because of exclusive deals Apple and other device makers strike with the biggest carriers. AT&T and Verizon Wireless pick up sales and marketing costs and subsidize the devices, he said.

“The local competitors that AT&T cites are not full-fledged competitors to the four national carriers, as they are hamstrung by their need to pay their national competitors large sums in roaming and special access charges and their inability to access many of the most in-demand smartphones,” Kohl wrote.

Lawmakers don’t participate in federal reviews of AT&T’s bid for T-Mobile. But analysts say agencies put a great deal of weight on the views of lawmakers. Kohl’s long tenure in the antitrust subcommittee makes his particularly influential, they say.

Other Democratic lawmakers on Wednesday told federal regulators that the proposed merger poses serious questions about wireless competition and urged them to investigate claims of how the deal with benefit consumers.

Reps. Ed Markey (D-Mass), John Conyers (D-Mich.) and Anna Eshoo (D-Calif.) wrote in a joint letter to Holder and Genachowski that the merger would be a “troubling backward step in federal public policy — a retrenchment from nearly two decades of promoting competition and open markets to acceptance of a duopoly in the wireless marketplace.”

But unlike Kohl, they stopped short of telling regulators that the deal should be blocked.

The lawmakers asked Justice and the FCC to analyze how the deal will affect jobs, consumers and the industry. And they asked the agency truth-squad promises from AT&T and T-Mobile that the deal will bring wireless connections more quickly to rural areas and create tens of thousands of new jobs.

“We also encourage you to scrutinize the transaction's supposed coverage and capacity benefits, with an eye towards determining whether the claimed benefits will actually materialize and could be achieved only as a result of this transaction,” the lawmakers wrote.

Conyers is the ranking member of the Judiciary Committee, and Eshoo is the ranking member of the Energy and Commerce subcommittee on telecom and the Internet. Markey, on the commerce committee, is an influential lawmaker on telecom policy, having previously served as chairman of the subcommittee.

Consumer groups have panned the merger, with Consumers Union saying the elimination of T-Mobile takes away a low-cost competitor to the nation’s biggest carriers AT&T, Verizon Wireless and Sprint Nextel.

On Wednesday, T-Mobile announced new data plans for smartphone users that are below the prices of its competitors. AT&T CEO Randall Stephenson has promised T-Mobile users can keep their contracts until they expire.


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