Expert Opinion: Why the FCC should deny the AT&T / T-Mobile Merger

In order for the Federal Communications Commission to approve the mega-merger between AT&T and T-Mobile, AT&T has to make a showing that the merger is in the public interest. Despite AT&T’s declaration that this merger is the most pro-consumer, pro-innovation and pro-investment solution to America’s wireless problems, a mega-merger like this can only hurt the broadband market, both for innovators and consumers alike.

Basic Facts

The basic facts are that post-merger, AT&T will control nearly 40 percent of the wireless market, and together with Verizon Wireless will create a duopoly that is approaching 80 percent market share in the wireless industry.  To put this in perspective, the market power of the top two companies in the wireless market post-merger will amount to 76.1 percent – more than double the market share of the top two companies in the Oil (24.0 percent), Airline (30.7 percent), Banking (20.2 percent), and Auto (35.3 percent) industries.

New Media Rights recently filed a detailed petition to deny the merger citing its negative affect on innovation, access to the internet, customer service quality, prices, service availability, and consumer privacy. We’ve also asked the California Public Utilities Commission to review the merger. Below is a discussion of just one of the areas that we think justify close scrutiny of this merger, the effect of the merger on Internet gatekeeping.

How AT&T uses its gatekeeping role to stifle innovations in voice telephony and control the way consumers access the internet

The current “gatekeeper” model of wireless internet access, where access providers like AT&T and service providers like Apple can control the services we can access, will only become more rigid should this merger be allowed. In the past few years AT&T has shown that it will work with other gatekeepers, such as Apple, in order to keep competitive products, such as Google Voice, out of its markets. In 2009, AT&T was called to explain its role in Apple’s decision to block Google Voice from the App Store, an app which would have introduced direct competition to AT&T’s voice services. During those proceedings it was revealed that Apple and AT&T had agreed not to approve Voice over Internet Protocol (VoIP) services for use over the 3G network because the service is in direct competition to voice plans used on the phone. Initial approval for VoIP apps was limited to those that would only work when the phone was hooked up to a local wireless network rather than AT&T’s data network.

Skype, another VoIP application for the iPhone, was similarly blocked in 2009 for use on AT&T’s network. Both Skype and Google Voice would have allowed consumers to move to cheaper voice plans, as well as have access to more affordable international calling.

The fewer wireless internet access providers available to internet users, the greater the ability of gatekeepers at all layers of the communications marketplace to affect how we use the internet and what services we access.

Apple’s gatekeeping power would also be enhanced by this merger, affecting the version of internet individuals have access to over wireless broadband.  Software developers and start-up businesses who rely on the benevolence of gatekeepers for distribution of their product can suffer though imposition of fees and unfavorable terms of service, especially when their products are perceived to compete with the gatekeeper’s. For example, a recent change in Apple’s policies for software developers and in-app sales appear to have forced at least one e-book reader out of business.

As further evidence of the need for competition at the various layers of the wireless internet marketplace, Apple has also demonstrated an ability and willingness to censor and block apps that it deems “offensive.” Two apps critical of President George W. Bush were blocked from sale in the app store, because Apple decided that they were in violation of the Terms of Service, namely, either a provision against criticizing a public figure, or one restricting views deemed to be offensive to a large part of Apple’s customers. Other apps have been labelled obscene and censored by Apple before being released to the public.

Apple and AT&T are two separate companies, but as demonstrated directly with the Skype and Google Voice apps, they have worked together to shape the “Internet” that is available to consumers to use through AT&T’s network.

The Commission chose in late 2010 not to engage in basic net neutrality regulation in the wireless space to ensure service providers do not abuse their gatekeeper powers, limiting regulations to ensure an open and free internet to the wireline space. The Commission, by avoiding basic regulation in the wireless space, made a choice to rely on competition as the only force to ensure an open and free Internet for consumers in the already highly concentrated wireless marketplace.

With a major competitor eliminated from the market through the potential merger, AT&T would have the ability to write new chapters in its history of anti-innovation behavior.

It should be consumers driving the future of the mobile Internet, picking the winning and losing services and applications at different layers of the market through individual choice. Instead, this merger will allow AT&T and Apple the kind of vertical market power that, instead of promoting competition, permits preemptive elimination of services and applications that are perceived to be competing.  Innovation and consumer choice will be what suffers.

To read more of our comments on the negative affect of this merger on innovation, access to the internet, customer service quality, prices, service availability, and consumer privacy, you can read our recently filed petition to deny the merger here.

Art Neill is Director of New Media Rights, a San Diego based digital rights and advocacy organization, and is an adjunct professor at California Western School of Law.