Over the process the subsequent year, AT&T and its opponents could be within the ring, duking it out in a confrontation in try and convince the govt that a $39 billion takeover of T-Mobile by AT&T should or can not happen. Consumers have the foremost to win or lose here, yet we’re resigned to watching from the sidelines as each side lob countless facts and stats at one another like volleys in a tennis match.
In the event you take a look at the merger process as a stairway to climb up, AT&T continues to be near the very bottom. Every rung could be filled with intense scrutiny because it is: if both companies are allowed to merge, the national GSM market becomes a monopoly, and the wireless industry as an entire would shift to simply three national players plus a handful of less-influential regional carriers. The carrier’s going to blow up to $6 billion if the merger is absolutely not approved — almost enough to buy Skype — it can’t just expect to position up some feel-good facts and stats to win the hearts of the verdict-makers.
AT&T has be absolutely sure it’ll pop out victorious within the war, else it risks losing the trust (and money) of its shareholders. But to achieve this type of feat, it needs to be on top of its game. There has been no better time to indicate off what it’s fabricated from than last week’s Senate Judiciary Committee hearing conducted by the Subcommittee on Antitrust, Competition Policy and Consumer Rights. When the Committee entitles a hearing “Is Humpty Dumpty Being Put Back Together Again?,” it’s either exercising a feeling of humor or a preconceived notion of the merger because of the implication that Ma Bell is just reforming. CEO Randall Stephenson appeared as a sacrificial lamb, going before Congress and his opponents to provide an explanation for his side of the tale, answer hardball questions, and endure a tough-hitting round of criticism. Continue reading as we take you topic by topic and consider what he — and his opponents — needed to say concerning the merger.
The hearing lasted for over two hours and involved six witnesses — three in support of the merger, three in opposition — all of which allowed to provide their viewpoints under oath. All the contestants prepared a written statement earlier than the meeting and was given five minutes of time to offer opening remarks. Following this, each Senator had the chance to impeach and grill whomever they wanted. Continue reading as we take you topic by topic and consider what these witnesses needed to say concerning the merger.
For the merger:
| Randall Stephenson | Phillip Humm | Larry Cohen |
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| CEO, AT&T | CEO, T-Mobile USA | President, CWA |
Against the merger:
| Dan Hesse | Victor H “Hu” Meena | Gigi Sohn |
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| CEO, Sprint | CEO, CellularSouth; President, Rural Cellular Association | President and Co-founder, Public Knowledge |
The theory of companies and consumer advocacy groups chatting with Senators about corporate mergers is sufficient to induce sleep. But let’s not underscore the significance of those forms of hearings. The dept of Justice and FCC are both government bodies liable for putting the stamp of approval at the merger, so the Judiciary Committee isn’t even directly involved; however, the hearing still provides us with a couple of benefits.
First, the purchase is now inside the public forum. We do not have a say on this matter, right? Wrong. Whether you compromise with the merger or not, you’re probably going to be suffering from it by some means, and it is important to grasp that you’ve a voice — and the FCC desires to hear it . Second, it encourages healthy discussion between each side of the problem, and open debate could bring several facts and stats to light that weren’t mentioned inside the one-sided document AT&T submitted to the FCC. Do not believe for a second that both decision-makers weren’t watching the hearing with intense interest. Third, the Judiciary Committee does have oversight over the DOJ and will potentially use this power to persuade the department’s decision if the members felt strongly enough.
Though the coverage on the hearing reached a broad range of subjects when it comes to the merger, a number of topics particularly were touched upon more often and were the purpose of focus for the Committee hearing: The spectrum crunch, effects of the merger on competition, rural coverage, LTE deployment, job creation/loss, and a potential duopoly within the US. There is a lot to hide, so we provide you with permission to sneak in a snack in between topics.
Spectrum will never be a limitless resource
Stephenson (AT&T):
We estimate that during 2015 we will be able to carry the same quantity of mobile data traffic by mid-February that we carried for the complete year in 2010. Pretty much the single thing which could decelerate this cycle of innovation, investment and growth is loss of capacity to fulfill this demand – and that is why there’s this type of discuss spectrum. This transaction increases overall network capacity beyond what the 2 companies had separately, as it permits more efficient use of existing spectrum and network assets. Our two companies have extraordinarily complementary assets. We use the similar technologies. We hold spectrum within the same bands.
One of several primary concerns within the hearing was determining even if AT&T actually has enough spectrum by itself. Give some thought to spectrum just like the selection of lanes on a hectic highway: during rush hour these highways get clogged up and causes traffic to slow to a crawl, but if more lanes are added, more traffic may be accommodated. Stephenson argues that probably the most major reasons his company had to purchase T-Mobile is to have enough spectrum to correctly build out its upcoming LTE network.
Humm (T-Mobile):
As data usage continues to blow up, spectrum is becoming a constraint to our business, with T-Mobile facing spectrum exhaust over the following couple of years in a variety significant markets. Moreover, our spectrum holdings won’t let us launch LTE. With the purchase by AT&T, T-Mobile could be ready to offer to just about all its customers full access to 850 MHz AT&T spectrum, so they can significantly improve deep in-building coverage to its customers. As T-Mobile already uses chipsets supporting 850 MHz, customers can be ready to make the most of these improvements shortly after the transaction closes.
Humm paints a depressingly dire picture of his company’s future throughout his remarks; on this instance he asserts that there’s no way T-Mobile can launch LTE with the quantity of spectrum it has available. When combined with AT&T’s spectrum, however, T-Mobile customers will enjoy LTE and 850 MHz coverage, all the grass will grow green, and lost kittens would be rescued.
Hesse (Sprint):
…with the Qualcomm spectrum it’s purchasing, AT&T has the biggest, licensed spectrum holdings of any wireless carrier. But it surely doesn’t use that spectrum efficiently.
Hesse goes directly to mention that 40 MHz of AT&T spectrum is left unused, since the company has chosen instead to “warehouse” — stockpile — for future services including LTE. It is a good point, but we’re curious to listen to if 40 MHz enough to launch and maintain the LTE network if the merger would not move through.
AT&T doesn’t face a spectrum crisis, but rather a spectrum deployment problem of its own creation… T-Mobile is already heavily using its spectrum inside the same high demand areas where AT&T asserts it needs additional capacity. Thus, the proposed merger would bring little spectrum relief to AT&T where it claims to want it probably the most.
We’re hoping to determine an improvement in areas of historically bad AT&T coverage, together with San Francisco or Big apple, but what about rural areas? Will this merger actually give all of them of the much-needed spectrum capacity they claim to require for you to actually hit 97 percent of american citizens?
Sohn (Public Knowledge):
There aren’t any spectrum shortages in rural America…and fully unused is â of its spectrum within the top 21 markets…
How much unused spectrum does AT&T have in these rural markets, if there aren’t any spectrum shortages? How much of rural America could be blanketed with LTE?
If AT&T were fascinated about spectrum inefficiency, it is able to stop operating 3 different systems.
So AT&T’s commitment to 2G, 3G and HSPA+ is causing an excessive amount of constraint on its spectrum holdings.
Stephenson (AT&T):
We do not have enough spectrum to deploy nationwide, but what we do have is unused because we’re building it.
Stephenson goes directly to mention his company is aggressively moving to launch LTE service this summer, but with a purpose to make the sort of landmark move, sufficient room must be cleared out and reserved specifically for that network. It did the similar thing when moving to 3G. In other words, if apparently as if AT&T is “warehousing” spectrum, that’s since it actually is.
This can be a tough argument to determine. How much spectrum does AT&T really need to correctly deploy a nationwide 4G network, and might this be achieved without purchasing T-Mobile? AT&T have been planning to launch LTE this summer regardless, without or with the merger; however, if the corporate truly is restricted in its spectrum, it is able to have got to divert spectrum far from other resources equivalent to 2G or HSPA+. If the FCC and DOJ determine AT&T has enough to do the job without T-Mobile’s aid, an amazing chunk of its argument could be completely flawed and no more credible as a result of the.
The merger’s effect on competition
Without a doubt, this transaction would have profound impacts at the wireless industry, but as of yet is without doubt one of the biggest unknowns of the whole deal. On one hand, the merger’s proponents argue there’s sufficient competition already, and wireless innovation is trucking along at a pace that can not be stopped. Meanwhile, opponents say innovation will decelerate since the “Twin Bells” don’t have any incentive to compete against anyone else. Let’s read on.
Stephenson (AT&T):
Nearly all of American consumers have a decision of not less than five facilities-based wireless providers … Any concern that the wireless industry is or can be dominated by AT&T, Verizon and Sprint merely because they’ve the most important subscriber bases today needs to be put to rest by 1Q 2011 results recently reported by MetroPCS and Leap, which together gained greater than one million net customers within the last quarter alone.
Stephenson throws out some numbers to make sure his captive audience understands the smaller guys offer a relevant amount of competition. And we will see his point, but if you’ve merged together and become a force of 130 million, will a net gain of one million subscribers be worth it slow and money in competitive focus?
Hesse (Sprint):
Importantly, the smaller companies all have faith in competitive access to the national carriers’ networks for wholesale roaming service, the pricing of which might be controlled by the dual Bells following the proposed transaction.
When the contest is paying you to supply their roaming coverage, as a lot of these regional and prepaid carriers are doing, you could have a major amount of leverage against them.
Cohen (CWA):
“The wireless industry is very competitive and should remain so after the AT&T / T-Mobile merger. In 23 of the tip 25 US markets, to illustrate, there are currently five or more facilities-based wireless competitors, including Verizon, Sprint, low-cost no-contract carriers like MetroPCS and Leap, and regional carriers consisting of US Cellular and CellularSouth that provide nationwide service plans.”
Aside from Cellular South, all of those competitors are CDMA carriers. AT&T would still have each of the control over GSM manufacturers eager to sell their devices within the US.
Stephenson (AT&T):
“Here is essentially the most competitive wireless industry around the world. Just check out pricing — voice pricing on this industry has come down 50 percent. Just within the last four years since we launched the iPhone, the worth for a megabyte of information has come down 90 percent.”
However, this was the past, and the industry would likely be much different post-merger. Mr. Hesse, what was the reason for those dropping prices?
Hesse (Sprint):
“Robust competition in our industry has led to steadily dropping prices for higher quality wireless communications services.”
Ah, so having intense and powerful competition amongst the four carriers led to dropping prices and more innovative services. How will the costs be affected post-merger?
“Because Sprint and other wireless carriers usually are not owned by large local telephone companies, we’re forced to buy backhaul service, more often than not from our largest competitors – AT&T or Verizon. Whereas Sprint must pay greater than $2 billion a year in backhaul fees to its competitors, AT&T and Verizon earn enormous profits from their control over backhaul. By controlling the provision and worth of backhaul, AT&T and Verizon also are able … to control their competitors’ costs and quality of service.”
Talk about leveraging power. We mentioned this earlier: with AT&T having so much power over the smaller companies in terms of roaming agreements, and controlling (alongside Verizon) all of Sprint’s backhaul, it sounds as though AT&T and Verizon already hold all the bargaining chips, and eliminating one more serious competitor would make it even more unbearable.
Humm (T-Mobile):
“By contrast, without the deal, a spectrally constrained AT&T and a spectrally and capital constrained T-Mobile would be ready to provide much less vigorous competition separately than would the more efficient, combined company.”
If T-Mobile is struggling financially and cannot actually deploy LTE due to lack of spectrum, does this really make for worse competition than not having T-Mobile around at all? Can it be much worse if AT&T loses and T-Mobile sticks around, earning $2 billion worth of spectrum in the process? Sounds like a win-win for T-Mobile.
So competition is robust at this very moment, resulting in lower voice and data rates among all of the major networks. How will this be affected by the merger? The critics mention that allowing the merger to occur would result in the Twin Bells dominating 80 percent of the US market, causing a virtual duopoly. In the past, they argue, duopolies hindered progress and stifled innovation, which sped up rapidly after these duopolies (Ma Bell, for instance) were broken apart. Tell us more, panel.
The power of a duopoly
As expected, the merger’s advocates remained completely tight-lipped on the subject of duopoly. The opponents, however, brought the subject up as often as possible in order to emphasize that this would be the end result of approving this transaction.
Hesse (Sprint):
As history has amply demonstrated, we should not expect the two reconstituted Bell companies to actively compete with one another. They would effectively eliminate the robust competition that has served America so well for nearly two decades… The difference in size between the top two and any other competitor would become too great, which would marginalize the ability of Sprint and the remaining local and regional carriers to influence the level of innovation in the industry ecosystem.
We could easily see Sprint and the smaller carriers making the worst out of a bad situation and stopping innovation, but it’s very likely that with less nationwide choices, it would be easier for Sprint to stand out of the crowd with innovative services and win back unhappy AT&T or Verizon customers. Even now, Sprint is courting unsatisfied T-Mobile customers by offering to buy out their contracts to switch over. Well played.
In a duopoly, the market can quickly reach equilibrium and, if both providers are reasonably happy with their position, innovation stagnates and prices rise.
If innovation slows down and the Twin Bells don’t do anything to improve their position, and don’t remain competitive, they might alienate shareholders that aren’t satisfied with the status quo, and frustrate consumers who get upset by sub-par customer service as well as not having the latest and greatest handsets available. Sprint has a lot of great opportunities here, and the merger could definitely help it gain subscribers if it continues playing its cards right.
Sohn (Public Knowledge):
Sprint will have just 16% of the market and instantly become a takeover target.
This is a scary thought. Sprint has been a takeover target in the past, so what’s stopping potential buyers like Verizon from giving it a go? Not to mention we have a hard time swallowing the idea of that kind of merger getting pushed through the DOJ and FCC. Going from four to three national carriers will be difficult enough to finalize, so how much slimmer are the chances three would whittle down to two?
Is rural coverage ever coming?
Another cornerstone in AT&T’s explanation for needing to purchase T-Mobile is to pick up spectrum for rural coverage, allowing businesses there to take advantage of broadband speeds they had never been able to access before. Here comes the defense.
Stephenson (AT&T):
In particular, LTE networks deliver higher speeds and much-reduced latency, which means that we will see many new innovative wireless services that offer real-time interaction. LTE will give businesses located in rural America the same powerful tools enjoyed by those located in major cities. And, rural consumers will particularly benefit from real-time access to a wide range of resources that would not otherwise be as readily available. …the transaction will allow us to bring these benefits to rural and urban areas alike, creating the information infrastructure needed to improve education, health care and public safety and to boost businesses, create jobs, and lower costs.
Other than re-emphasizing the need to build out LTE, he doesn’t mention how the merger will help expand its coverage to rural America. The benefits are great, but tell us how you plan to get there. In rebuttal:
Hesse (Sprint):
There is nothing in the proposed merger that changes the fundamental economics of rural broadband deployment. Rural areas do not suffer from any shortage of spectrum given the lower demand for services that results from lower population densities. Rather, rural expansion has been delayed because the lack of population density in rural areas simply makes build-out more expensive per subscriber. The addition of the T-Mobile network to that of AT&T would not change this fact, and would only extend the AT&T network to about 1 percent more of the population than are already in AT&T’s network coverage.
If it only expands AT&T’s coverage out to an additional 1 percent of the population, and if rural buildout is slowed only by abnormally high expenditures, how is it going to hold to its promise of rural expansion?
Meena (Cell South):
There’s nothing in the T-Mobile deal that makes building out rural any easier than it is today. One of the big challenges we have is trying to get a roaming agreement on AT&T. We’ve been told “the roaming person is out of town.”
Meena makes it sound as if his company only called AT&T once, left a message with the front lobby, and waited around for their call to be returned. This merger would certainly not become any easier for regional carriers to set up roaming plans with AT&T. Unless, of course, this means AT&T&T would have two roaming people.
Creating or losing jobs
Do mergers create or destroy jobs? It’s hard to say: additional hands would be needed to help bring the two networks together, deploy LTE, and assist with other various tasks associated with the merger. However, it’s not likely that every single T-Mobile employee will still have a job with AT&T. Here’s what the heavyweights have to say about it:
Cohen (CWA):
During implementation of the…merger, CWA will work closely with AT&T to ensure that there will be no involuntary job losses and that any workers adversely affected by the transaction will be able to transition into other similar or better jobs with the company. Indeed, we believe in the long term that AT&T…will be in a stronger position to create jobs because it will be better able to expand and extend its business than either AT&T or T-Mobile could have done as separate entities. The expansion of AT&T’s 4G LTE network that will result from the merger holds the potential to create thousands of new jobs. More than 20,000 T-Mobile employees will be able to work for a company that respects workers’ rights and enjoy improved working conditions.
One would assume a primary duty of workers’ unions is to ensure little or no job losses, and we don’t disagree it will be the same case with this merger. The only question: since T-Mobile employees don’t work under unions, is the CWA concerned at all about seeing to the needs of those new employees? Does it care about T-Mobile employees? We imagine the answer is yes, since 20,000 new employees would mean more revenue for the CWA from workers’ dues.
Sohn (Public Knowledge):
If AT&T wants to create jobs, it could do so without buying a competitor. It’s hard to find a merger that creates jobs. The merger will result in jobs lost in every area where AT&T and T-Mobile have redundant staffing, competing retail stores, overlapping call centers, and other facilities…AT&T..has shed approx 28,000 jobs over the last 21 months.
It could be true that redundant staffing will be cause for job losses, although network expansion may alleviate some of those losses. We don’t know if it will actually create jobs such a lot as balance them out with the gains, and that all remains to be seen.
Stephenson (AT&T):
All the major unions are in support, and they don’t usually support things that cut jobs. You create jobs where you invest. It’s in our shareholders’ interest to deploy 700MHz LTE, and it’s an $8b investment.
Certainly the $8 billion will go back into the economy in one way or another, and additional jobs will be required to deploy this network. But how many jobs? Will it counter those jobs lost from redundant staffing, or at least match that number?
Conclusion
Okay, that was a lot of ground to cover, but believe it or not that was just a small sliver of the information that came out at the Senate Judiciary Committee hearing. Should you desire to browse the entire collection of quotes and witness testimonies, make sure to reserve some extra spare time and visit the links below.
Now it’s your turn. Are you for or against? Sound off within the comments.
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