Senators Grill Mobile CEOs on AT&T/T-Mobile Merger

WASHINGTON May 12, 2011- The Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights assembled leading mobile CEOs Wednesday to explore the proposed merger between AT&T and T-Mobile.

“The proposed merger between AT&T and T-Mobile will bring together two of the four remaining national cell phone carriers to create the nation’s largest cell phone network, with an estimated 43 percent market share,” said Sen Herb Kohl (D-WI), Chairman of the Subcommittee, setting the tone for the hearing. “Should this deal be approved, AT&T and Verizon will control close to 80 percent of the national cell phone market.”

Kohl highlighted that the wireless industry is increasingly become concentrated among only four national providers, T-Mobile, AT&T, Verizon and Sprint. Kohl fears that the merger will allow AT&T to have a stranglehold on the already scarce spectrum market.

Sen. Patrick Leahy (D-VT) along with Kohl asked AT&T to guarantee that if the merger was approved the company would meet its promise of expanding mobile broadband to 97 percent of Americans.

“I want assurances that these requirements will be met,” Leahy said. “AT&T represented to me that within two years, this acquisition will result in 250,000 more Vermonters having access to its 4G service than would otherwise be serviced by either company on its own – but I am naturally skeptical.”

Leahy was also curious as to why AT&T needed T-Mobile to expand its spectrum holdings since AT&T is one of the nation’s largest spectrum holders. During her testimony Gigi Sohn, Co-Founder of Public Knowledge, said that AT&T does not use one third of the spectrum the company owns in the top 25 markets.

Randall Stephenson, CEO of AT&T, said that the company needs the spectrum owned by T-Mobile to expand its coverage into rural America and further expand 4G Long Term Evolution coverage.

Stephenson also responded to Sohn’s comment by saying that AT&T will exhaust its current spectrum holdings over the next two years in those large markets. Additionally, the firm needs to maintain older networks while it transitions its users.

With the newly acquired spectrum, AT&T claims it will be able to expand its 4G coverage to 97 percent of the population, which will cover 50 million more people than the firm would be able to cover using its current spectrum holdings.

T-Mobile USA’s CEO Philipp Humm said that if it does not merge with AT&T, T-Mobile customers will not be able to gain access to 4G Long Term Evolution. T-Mobile does not possess the necessary spectrum to develop a LTE network and its parent company, Deutsch Telekom, does not have the funding to purchase additional spectrum.

Humm also assuaged the Senators’ concerns about the potential rise in prices  for consumers with the decrease in competition.

“Due to the complimentary nature of the T-Mobile and AT&T networks, when the firms merge the costs to operate the networks will decrease, creating price savings for consumers,” Humm said.

Kohl pressed Stephenson on the price issue, asking if current T-Mobile customers would be able to keep their lower price plans. Stephenson said that AT&T would allow for the maintenance of current prices for T-Mobile customers and that prices could potentially drop for all of its customers due to the gained efficiencies.

Daniel Hesse, CEO of Sprint Nextel, refuted the claim that prices would drop saying that the newly formed duopoly would not have a viable competitor to drive prices down. Currently both Sprint and T-Mobile are able to drive down prices by offering competitive nationwide plans.

Hesse also believes that this new duopoly will limit handset availability and decrease overall innovation.

“Competition drives innovation, and innovation is vital to maintaining the prosperity and leadership of this country,” Hesse said. “Because wireless communication has become a fundamental gateway to so many other related industries, it is imperative we advance competitive, market-driven policies that maximize this engine of innovation and economic growth. Handset manufacturers will be less likely to partner with anyone other than the duopolists, because access to their nearly 80 percent of the market’s customer base will be sufficient.”

Cellular South CEO, Victor Meena, echoed Heese’s fears that the new duopoly would lock out smaller regional carriers from gaining access to new smartphones. Regional carriers already struggle to gain access to these handsets.

“AT&T already uses their market power to enter into exclusive contracts preventing others from getting access,” Meena said. “By acquiring T-Mobile, [AT&T] will only become more powerful,”

Sen. Al Franken (D-MN) pressed Stephenson on the issue of handset exclusivity, asking if the firm would stop entering into these agreements. Stephenson said that these agreements provide handset makers with production guarantees that allow for large production runs that decrease overall price.