By Ian Shapira and Jia Lynn Yang
Tuesday, March 22, 2011; 7:45 AM
A day after AT&T announced it would buy T-Mobile USA to create the biggest wireless carrier in the country, consumer advocates and some members of Congress blasted the deal, arguing the $39 billion merger would lead to higher prices and fewer choices for cellphone users.
The deal comes at a time when the cellular business has become dominated by two giants - AT&T and Verizon - with Sprint Nextel and T-Mobile lagging far behind. The merger, which has to be approved by regulators, is the latest salvo by AT&T to compete for customers who are increasingly using wireless networks not just to make calls but also to surf the Web on tablets and smartphones.
AT&T argued that the merger - the largest worldwide in two years - would increase its coverage to 95 percent of the U.S. population, especially into rural areas, satisfying a key technology goal of the Obama administration.
Anticipating regulators' concerns, AT&T also maintained that the U.S. wireless industry remains "fiercely competitive," especially in local markets where low-cost regional carriers are becoming popular.
AT&T needs the approval of the Justice Department and Federal Communications Commission to buy T-Mobile, which is the smallest of the major cellular companies and has carved out a niche by offering cheaper plans.
Whether or not regulators approve the merger, Wall Street took the news as a sign of the economy's strength. On Monday, the Dow Jones Industrial Average rose 1.5 percent.
But public interest organizations expressed alarm yesterday about the transaction. Many argued that the deal will effectively render Verizon and AT&T - which control about 60 percent of the wireless market with about 200 million subscribers - a duopoly.
"You're having the second- and fourth-biggest companies come together so they can totally cream the other guys, and when it comes down to it, what we're talking about for consumers is prices. They will go up," said Harold Feld, legal director of Public Knowledge, a digital rights nonprofit. "And it's not as if anybody else can suddenly come into the market and challenge these guys."
Many critics contend that the smaller carriers are hobbled because AT&T and Verizon are not required by law to give subscribers of smaller carriers data-roaming plans that enable Internet access.
"Competitors are going to say, 'We can't compete and they'll want to get bought up by competitors,' " said Parul Desai, the policy counsel at Consumers Union, the nonprofit publisher of the Consumer Reports. "That leaves consumers with less choice and bad prices, and bad consumer prices affect innovation, especially when you have two or three carriers dominating the market."
AT&T has a long history with antitrust regulators, who sought to end the company's dominance in the 1980s by splitting it into the eight so-called Baby Bells after a landmark antitrust suit. In 2005, one of those firms, SBC, bought its former parent.
Nearly three decades after trying to bust up AT&T, regulators are again scrutinizing the company's power. The FCC and the Justice Department have expressed some concerns that consumers do not have enough choice among wireless carriers.
The FCC has typically released reports reassuring that the wireless industry is competitive. But in May, it instead noted how Verizon and AT&T are continuing to increase their 60 percent market share, while the next two largest, T-Mobile and Sprint, had a combined 1.7 million net loss in subscribers in 2008, and only gained 827,000 in 2009.
"Specifically, the Report confirms something I have been warning about for years - that competition has been dramatically eroded and is seriously endangered by continuing consolidation and concentration in our wireless markets," wrote FCC Commissioner Michael Copps, who was selected by Senate Democrats and appointed by President George W. Bush."We are going to need an extra dose of vigilance going forward and use whatever policy levers we have available to ensure good outcomes for American consumers."
In January 2010 the Justice Department offered a rare view into its thinking about the industry as part of its response to the FCC's national broadband plan.
"The Department starts from the presumption that in highly concentrated markets consumers can be significantly harmed when the number of strong competitors declines from four to three, or three to two," wrote the attorneys, including Christine Varney, the Justice Department's chief antitrust enforcer.
A Justice Department spokesperson declined to comment. An FCC spokesman did not return an e-mail seeking comment.
On Capitol Hill, both Republican and Democratic lawmakers said they wanted to initiate their own inquiries. Rep. Bob Goodlatte (R-Va.), chairman of the subcommittee on Intellectual Property, Competition and the Internet, said in an interview yesterday that he plans to hold hearings on the merger.
"You have two competitors who are going to have a larger share of the market and obviously, we would be concerned on what impact they would have on prices in the market and choices that consumers have," he said.
AT&T will focus its attention on the FCC and Justice Department inquiries, according to a person familiar with the pending investigations, who is not authorized to speak publicly about the cases.
"The congressional reaction is going to influence some of the public debate, but at the end of the day, the regulators are going to look at this on the basis of the facts and legal standards. That's where the game is going to be decided," the person said.
On Monday, AT&T's shares rose about 1.2 percent, while shares of Deutsche Telekom, T-Mobile's parent company, jumped more than 11 percent. Shares of Verizon, the nation's largest carrier, rose, too, as investors predicted consolidation would ultimately benefit the company.
Sprint, which had tried to buy T-Mobile, fell nearly 14 percent, on concerns about whether it could survive on its own.