Today, U.S. v. AT&T Gets a New Meaning

August 31, 2011 is indeed a fine day for competition in the wireless telecommunications industry, and it is very reaffirming to see that AT&T’s lobbying power in DC has for once not worked to their advantage—no amount of lobbying dollars can conceal the fact that this merger would be a disaster for competition and consumers. The AT&T-Mobile Saga is not over yet, not by a long shot… However, AT&T’s stronghold over the outcome has been softening gradually over the last month and with the DOJ’s decision today, AT&T’s claims to T-Mobile, and therefore to a duopoly in the wireless industry, are becoming more of a pathetic whimper than a battle cry.

I have been trying to consistently cover the merger from a rural telecom perspective since it was announced, but I’ve been fairly selective about what I have written about since there is no shortage of good information available. Well, if this announcement doesn’t warrant me taking a short break from USF comments, then I don’t know what does!

I have honestly not been paying very much attention to the DOJ’s review of the merger-the DOJ is “out of my element,” so to speak, so I typical focus my attention on the FCC’s review. I actually haven’t been paying all that much attention to the merger in general for the last few weeks, as I have obviously been focused on USF. However, I have been pleased with the FCC’s merger review so far, including its ongoing search for more information from AT&T. To me, this has indicated that the FCC is not about to blindly accept the merger (which Commissioner Copps assured the world several months ago). Public opinion about the merger has continued to decline, despite what AT&T may be saying. AT&T continues to spin news reports and “facts” about alleged merger benefits in a way that attempts to draw attention away from the real issues. They say the merger will create 5,000 jobs, but negative 15,000 jobs do not a public benefit make (this is just one of the recent examples of AT&T’s delusional attempts to justify the merger). 

Anyway, I couldn’t believe my eyes when I saw earlier today, on Twitter of course, that the DOJ filed a suit to block the merger—apparently, AT&T did not even expect this monumental action by the DOJ. I thought the Telecom Gods had gifted us aplenty this week with the FCC’s decision to extend the reply comments on USF by an additional week, but I guess I was wrong! Basically, the DOJ thinks the merger will have detrimental effects on competition, which means that the DOJ is actually doing its job. Here is a rundown of some of the comments in the United States of America v. AT&T Inc., T-Mobile USA, Inc., and Deutsche Telekom  that I found interesting, with an emphasis on comments regarding smaller carriers:

•  “Vigorous competition is essential to ensuring continued innovation and maintaining low prices.” (pg.2). Nice shout-out to the Brick Phone of Yesteryear!
•  “None of the smaller carriers’ voice networks cover even one-third of the U.S. population, and the largest of these smaller carriers has less than one-third the number of wireless connections as T-Mobile. Similarly, regional competitors often lack a nationwide data network, nationally recognized brands, significant nationwide spectrum holdings, and timely access to the most popular handsets” (pg. 2-3).
• T-Mobile has, and continues to be a “challenger brand,” which is an important role in the market, and “places important competitive pressure on its three larger rivals, particularly in terms of pricing” (pg. 3)—a role which should not be eliminated from the marketplace.
• “There are no cost-effective alternatives to mobile wireless telecommunications services” (pg. 6)—not for regular consumers or business/enterprise/government consumers.
• “In the face of a small but significant price increase imposed by a hypothetical monopolist it is unlikely that a sufficient number of customers would switch some or all of their usage from mobile wireless telecommunications services to fixed wireline services such that the price increase or reduction in innovation would be unprofitable” (pg. 7).
• “Nationally, the proposed merger would result in an HHI of more than 3,100 for mobile wireless telecommunications services, an increase of nearly 700 points. These numbers substantially exceed the thresholds at which mergers are presumed to be likely to enhance market power“(pg. 12).
• T-Mobile is not only a value challenger, but a known innovator, “responsible for numerous ‘firsts’ in the U.S. mobile wireless industry:” first Android handset, BlackBerry, wireless e-mail, Sidekick, Wi-Fi hotspots, advanced HSPA+ technology, and unlimited plans (pg. 12). [But AT&T had the first iPhone, which is all that really matters now, right?]
• “Competition taking place across a variety of dimensions, including price, plan structure, network coverage, quality, speeds, devices, and operating systems would be negatively impacted if this merger were to proceed” (pg. 14).
• Smaller carriers would especially be impacted re: roaming agreements, ability to “constrain” the Big 4, obtaining good handsets and smartphones, and ability to increase their market shares.
• “Enhanced risk of anticompetitive coordination” = significant harm, for consumers “all across the nation, including those in rural areas with limited T-Mobile presence” (pg. 16)
• “By eliminating T-Mobile as an independent competitor, the proposed transaction will likely reduce the competitive incentive to invest in wireless networks to attract and retain customers” (pg. 17).
• The merger would increase entry barriers, and entry “would not be likely, timely and sufficient to thwart the competitive harm” that the merger would cause (pg. 19)

Naturally, the response from the industry has been colossal. Most merger opponents wasted no time in releasing statements declaring the DOJ’s decision a victory and “a triumph of facts over politics,” but AT&T has spit back that they will oppose this decision—I don’t know about you, but I can’t wait to see what “evidence” they provide in an effort to persuade the DOJ to reverse its findings. PCMag.com cautions that “the fight isn’t over until a federal court hands down an order to block the merger, or AT&T decides it will just be too much trouble.” However, other analysts are saying that the merger is basically dead in the water, which could end up being a bad thing for companies like Sprint who may wish for a shot at eating AT&T’s leftovers once the deal falls through.

The Wall Street Journal’s article asks, “who could oppose a deal supported by interest groups as varied as the Louisiana Ballooning Festival and the Association of New Jersey Orchestras?” Since I’ve found the insanely strange responses by rice farmers, balloon hobbyists, cattle ranchers and whatnot one of the most entertaining aspects of this merger, I can’t help but say this: “It’s a dark day for AT&T’s minions.” Next time, perhaps try gaining favor from constituents who are actually involved in the telecommunications industry. Most rational analysts saw though all the fluff submitted by these parties as nothing more than an attempt by AT&T to buy support and make the awful deal seam palatable. Anyway, who can argue with the Association of Retired and Disabled Minority Rare Orchid Farmers with Lupus when it comes to telecommunications mergers?  You don’t want to look like an insensitive jerk by saying “these people know nothing about the wireless market,” so you just let them have their duopoly—right? I think that was AT&T’s intention all along, because there definitely haven’t been any cold, hard facts proving that the merger will be a benefit to competition and consumers. 

Looking at the reactions… A statement by the Rural Telecommunications Group (a vocal opponent of the merger) explains that the DOJ’s decision “shows that there is no question that this merger would have been bad for rural America, rural consumers, and rural carriers.” Another vocal opponent, Public Knowledge, stated: “Fighting this job-killing merger is the best Labor Day present anyone can give the American People. AT&T’s effort to recreate ‘Ma Cell’ by holding rural broadband hostage and threatening American jobs deserves nothing by scorn. The FCC should move as quickly as possible to follow the lead of the Department of Justice and reject the merger.” JSI Capital Advisors analyst Richelle Elberg expressed little surprise about this decision and provided a great chart describing her reaction’s to AT&T’s alleged benefits of the merger. GigaOM mused on what might happen to T-Mobile if the deal fails, and considered options ranging from Sprint moving to merge with T-Mobile (again, but I honestly don’t expect this outcome to happen) to T-Mobile getting snatched up by a cable company or private equity firm. Members of Congress have weighed in too—Senator Al Franken (D-MN), yet another vocal opponent, stated “I have long believed that this merger would be a terrible deal for consumers, and I’m pleased the Department of Justice has taken the wise step of officially opposing it.” 

You get the idea—basically everyone is ecstatic about this decision, at least everyone who isn’t AT&T or T-Mobile or perhaps the International Rice Festival. Well, I am ecstatic too but I heed the warnings that the war is not won yet. I think the FCC will be more likely to block the merger now that the DOJ has filed this suit, but I definitely do not see AT&T letting up on the pressure. 

I think the DOJ has effectively paved the road for merger opponents, especially small wireless carriers, to feel confident that the government is not always against “the little guy.” The DOJ filing clearly describes the challenges that small carriers will face if the merger is approved, and these companies should continue to provide evidence illustrating this fact. Small rural carriers who are opposed to the merger need to keep in mind, "the battle may be won but the war is not over."

So far this merger has enough twists, turns, shocks and stabs to befit, well, an AT&T-sized merger. I can’t wait to see what happens next!

Tomorrow… Back to USF comments.

Cassandra Heyne

ruraltelecommentary@gmail.com