Most Read: Business

DJIA
0.11%
S&P 500
0.33%
NASDAQ
0.50%
 Last Update: 06:42 PM 08/29/2014

World Markets from      

 

Other Market Data from      

 

Key Rates from      

 

Blog Contributors

Timothy B. Lee

Timothy B. Lee

Timothy B. Lee covers technology policy, including copyright and patent law, telecom regulation, privacy, and free speech. He also writes about the economics of technology. He has previously written for Ars Technica and Forbes. You can follow him on Twitter or send him email.

Brian Fung

Brian Fung

Brian Fung covers technology for The Washington Post, focusing on electronic privacy, national security, digital politics and the Internet that binds it all together. He was previously the technology correspondent for National Journal and an associate editor at the Atlantic. His writing has also appeared in Foreign Policy, Talking Points Memo, the American Prospect and Nonprofit Quarterly. Follow Brian on Google+ .

Andrea Peterson

Andrea Peterson

Andrea Peterson covers technology policy for The Washington Post, with an emphasis on cybersecurity, consumer privacy, transparency, surveillance and open government. She also delves into the societal impacts of technology access and how innovation is intertwined with cultural development.

Post Tech
About / Where's Post I.T.?   |    Twitter  |   On Facebook  |  RSS RSS Feed  |  E-Mail Cecilia
Posted at 12:12 PM ET, 03/21/2011

Battle over AT&T, T-Mobile deal begins in Washington

Members of Congress have promised to take a “close look” at the $39 billion proposed merger between AT&T and T-Mobile and whether the union, which would create the nation’s largest cellphone company, would mean higher prices and less choice for consumers.

“Consumers have borne the brunt of the increasingly concentrated market for mobile phone service,” Sen. Herb Kohl (D-Wis.), chairman of the judiciary subcommittee on antitrust, said in a statement. “The explosion of cellphone usage - especially smart phones - makes competition in this market more important than ever as a check on prices, consumer choice, and service.”

Rep. Anna G. Eshoo (D-Calif.), ranking member on the House Energy and Commerce Communications and Technology Subcommittee, echoed Kohl’s concerns. “Competition is essential to promoting a vibrant wireless market, where consumers have a choice in the innovative services and devices available to them,” she said. “As the FCC and DOJ begin their regulatory and antitrust review, I urge them to carefully examine the proposed transaction.”

The deal is likely to face a difficult path to regulatory approval because the combination of AT&T and T-Mobile, the second- and fourth-largest carriers with 99.5 million and 33.7 million customers respectively, would effectively leave only two other companies--Verizon and Sprint--as viable competitors. It requires approval from the Federal Communications Commission because of the transfer of wireless spectrum licences and will also likely face antitrust scrutiny from the Department of Justice.

On Monday, AT&T shares and Deutsche Telekom AG, which sold T-Mobile to AT&T, were up, while those of other wireless companies were falling. Shares of Sprint Nextel, the third-largest operator, were off 13.6 percent, and shares of companies that operate telecom towers--American Tower, Crown Castle International, and SBA Communication--were also down.

Since the deal was announced late Sunday, consumer groups have decried the merger, pointing out that past consolidation has caused prices to rise and some carriers to switch to tiered data plans. T-Mobile has offered among the lowest rates of the major carriers, and while AT&T will have to honor its contracts, there’s nothing to prevent AT&T from hiking prices after the agreements expire.

In anticipation of such concerns, AT&T and T-Mobile have already been touting the public benefits of a merger in Washington.

In its presentation to investors this morning, AT&T outlined the reasons why it is confident it can win regulatory approval. The company said that the merger is both in the public interest and will not hurt competition in the wireless market. In fact, AT&T said, such competition is growing, citing competitors such as MetroPCS, US Cellular, Cellular South and newcomers LightSquared and Clearwire.

The company also said that the deal is in line with the Obama administration’s goal of getting broadband access to 95 percent of the country. Additionally, the company said, it allows an American company to invest in T-Mobile and promote high-tech growth and innovation.

As for consumers, AT&T argued that by combining its spectrum with T-Mobile’s, the companies can provide better service than either could do alone. The merger will lead to greater coverage density, the company said, and expand the number of devices available to consumers on both networks.

Craig Moffett of Bernstein Research said the companies will likely promise reduced consumer rates and the unionization of the wireless workforce to appeal to Democrats.

Barclay’s Capital’s James Ratcliffe said that the regulatory challenges the deal will face are surmountable, but certainly not easy. Of course, the major obstacle to both players is the risk that the deal will not be approved because of antitrust concerns. AT&T has said that it will be able to win approval for the deal, a sentiment analysts seem to echo. “AT&T’s regulatory team is high-quality, and we don’t think the company would be going down this path, (given $3BN breakup fee, especially), if they didn’t have high confidence of success,” Ratcliffe wrote.

Analyst Rebecca Arbogast of Stifel-Nicolaus said that she does not believe that even a Democratic administration will be “stubborn about maintaining four as opposed to three nationwide wireless carriers,” but will be concerned about moving toward a wireless duopoly. She added that some state attorneys general may be able to weigh in, but are unlikely to act on their own to block the deal.

From a business perspective, analysts say that the proposal is a win for both AT&T and Deustche Telekom, which will be able to easily integrate their networks.

This deal is also a positive for Verizon, some analysts have said. Ratcliffe wrote that, should the merger go through, “it would likely result in a more stable, less aggressively competitive wireless market in the long term. In the near term, the deal will almost certainly result in distraction at both AT&T and T-Mobile as they work to get regulatory approval for the transaction.”

BTIG’s Walter Piecyk doesn’t think the effect on Verizon is quite as clear-cut. “Ivan Seidenberg has been unconvincing in his attempt to convince investors that they are not in need of spectrum and AT&T just shined a bright light on this apparent bluff,” he wrote in a blog post Monday morning.

As for speculation that Verizon may now counter with an offer to buy Sprint, many analysts do not see that happening. Moffett said that the prospect of the AT&T/T-Mobile deal is an attractive one for Verizon, which would do well in a duopoly market. “We believe Verizon is unlikely to upset that apple cart,” Moffett said.

Analysts universally agree that Sprint is the biggest loser from the deal. Rumors said that Sprint — currently the third-largest carrier --- was also in the market for T-Mobile USA as recently as last week. The deal will “badly marginalize” Sprint, Moffett said. The deal “leaves Sprint without an obvious way to gain scale,” Ratcliffe said.

Also standing to lose in this deal are tower companies, as there will be a large reduction in cell sites. Ratcliffe said that there is a silver lining for tower companies, however, since AT&T will likely have to add cell sites to cover 95 percent of the population.

Another winner mentioned in analysts reports is Apple, which can now market its iPhone to T-Mobile’s customer base without having to make a new version of its handset. Piecyk said that Clearwire also comes off well in the deal. “A LightSquared network sharing deal with Sprint as a point of leverage against Clearwire seems almost laughable now that T-Mobile is out of the mix for at least a year, if not forever,” Piecyk said.

Taking a wider lens, Arbogast of Stifel-Nicolaus said that the merger could change the conversation about spectrum, as joining forces could reduce spectrum demand and “possibly lower auction revenue estimates.”

By  |  12:12 PM ET, 03/21/2011

Tags:  AT&T, T-Mobile, Sprint, Verizon, Clearwire, Apple, DOJ, FCC

 
Read what others are saying
     

    © 2011 The Washington Post Company