AT&T/T-Mobile Hearing Recap

On May 11, 2011, the Senate Committee on the Judiciary's Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing entitled "The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?" Skeptical senators questioned AT&T about what the deal would do for consumers. “The more providers of cellphone service, the lower the price, the better the quality of service and the more innovation that results, so the burden will squarely be on AT&T and T-Mobile to convince us why this merger is necessary, how it will benefit consumers, and to put aside our suspicion that it may very well harm competition,” said Subcommittee Chairman Herb Kohl (D-WI).

AT&T CEO Randall Stephenson said AT&T still faces considerable competition at the local level and that the merger will allow it to more effectively compete with smaller regional players like Metro PCS. He said federal regulators have traditionally looked at the impact on competition at the local level rather than nationally.

While Democrats focused on the harm that could come from the merger, some Republican lawmakers questioned AT&T and T-Mobile about the effect on its rollout of next-generation wireless service if it does not merge with T-Mobile. Noting that he would rather see industry take the initiative instead of government, Sen. John Cornyn (R-TX) questioned how the merger would affect the buildout of wireless broadband.

While AT&T Chief Randall Stephenson strongly defended his company's proposed acquisition of T-Mobile. He refused to call T-Mobile a competitor and denied that AT&T considered the benefits of removing T-Mobile from the wireless marketplace. Stephenson said T-Mobile is not a "competitive focus" for AT&T because the smaller company is losing subscribers. T-Mobile still runs ad campaigns specifically targeting AT&T's system. The AT&T CEO also denied wanting to remove T-Mobile as a competitor, or that officials considered that when AT&T decided to acquire T-Mobile.

But Stephenson did signal some areas where he's willing to deal. During the hearing, Cellular South CEO Victor Meena complained that smaller carriers have been unable to reach data roaming agreements with AT&T. Subcommittee ranking member Mike Lee (R-Utah) pressed Stephenson on whether he would offer data roaming deals to smaller carriers like Meena's at reasonable rates. "Absolutely, that's the law," Stephenson replied, and offered to meet with Meena after the hearing to discuss his specific concerns. Stephenson also agreed that his company would not accept any money from the Universal Service Fund to help expand its wireless broadband offerings. The fund has traditionally subsidized telephone service in rural and high-cost areas but the Federal Communications Commission is revamping it to include support for broadband service.

The Communications Workers of America, a key early endorser of the deal, said it wants federal regulators to add conditions to the deal -- ranging from pricing to the speed of broadband to specifics around deployment.

Sen. Al Franken (D-MN) read a list of past quotes and paraphrased statements from Stephenson that indicated the AT&T CEO thinks of his company as a national brand. "You don't think Apple gave you on an exclusive on [the iPhone] because you're a national company?" Franken asked. "You think they would have given it to a local [merchant]?" "Well, it's not as likely," Stephenson conceded. "But, you know, they did spread it around in Europe." Sen Franken sighed audibly.

Other subcommittee members pointed to AT&T advertising that boasts about the company's national reach. And Daniel Hesse, CEO of Sprint Nextel, bitterly disagreed that regional players will be able to compete. "This merger is unfixable," Hesse said bluntly in his opening statement. "It will stifle the vibrancy of the wireless industry. It will turn back the clock to the time of Ma Bell." Hesse said the merger would snuff out regional competitors and keep prices high for consumers. Ultimately, he said, the deal is positive for only the three major wireless parties: Shareholders of AT&T, Verizon and Deutsche Telekom -- the sole shareholder of T-Mobile.

Senate Judiciary Committee Chairman Patrick Leahy (D-VT) said he was skeptical about AT&T’s promises that the deal would lead to more service in rural states such as his. The Judiciary Committee will push regulators to perform an “exhaustive and careful analysis.” “I expect the Justice Department is leery of creating a market where other companies have to merge in order to survive,” Chairman Leahy said.