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Regulators likely to put major conditions on AT&T's acquisition of T-MobileJul 30, 2011 (The Dallas Morning News - McClatchy-Tribune Information Services via COMTEX) -- AT&T Inc.'s offer to buy rival T-Mobile USA Inc. for $39 billion was probably the result of dozens, if not hundreds, of hours of negotiation between the companies. But that process pales next to the horse trading AT&T is likely to have to do with federal regulators to get formal approval for the deal. "If this merger is approved, I think the government will squeeze so hard they will make AT&T turn blue," said Jeff Kagan, a wireless industry analyst. "But at least they will get what they so desperately want: spectrum." Politicians, public interest groups and rival wireless companies are all pushing for the Federal Communications Commission and Justice Department to block the acquisition or impose substantial conditions on AT&T. While the FCC and Justice Department ultimately will make their own decisions on whether the merger is in the public interest and doesn't violate antitrust laws, those outside voices can sway the decision makers, experts say. Even AT&T acknowledges that it will have to give up something to get what it wants. When the purchase was announced in March, AT&T chief executive Randall Stephenson said he expected to have to agree to some divestitures. Concessions are the norm In an interview last week, Wayne Watts, senior executive vice president and general counsel at AT&T, declined to talk about possible conditions on the T-Mobile acquisition. But he said such deals are usually accompanied by concessions. For example, "when Cingular bought AT&T Wireless, we had to divest some markets where the government felt the competitive concentration was too high," Watts said. AT&T might be forced to exit some geographic markets altogether or perhaps sell off some of its wireless spectrum holdings in some cities or regions. But Watts said there are few hard and fast guidelines for the FCC and Justice as they determine what assets an acquiring company must get rid of to maintain vibrant competition. The FCC does use a "spectrum screen" to determine how much spectrum -- the airwaves over which cellular signals travel -- a company should be allowed to own in a particular region. In many markets, the FCC prohibits companies from owning more than 145 megahertz of wireless spectrum. But that isn't a hard cap, Watts said. "I can tell you Sprint has over 170 megahertz of spectrum right here in Dallas, and in some markets they've got 200," he said. Acquiring more spectrum is one of AT&T's biggest goals in the T-Mobile deal. AT&T says it needs the additional airwaves to offer new wireless technologies and to keep up with surging consumer demand for mobile broadband on smartphones, tablets and other devices. Spectrum isn't a concern just for AT&T, though. Both the FCC and the wireless industry overall have said more spectrum needs to be freed up for wireless data, probably by auctioning off some of the spectrum held by the federal government or no longer needed by television broadcasters. The terms that regulators offer to acquiring companies are rarely take-it-or-leave-it offers. Instead, AT&T is likely to review the proposed conditions and make counterproposals, explaining why the terms in particular markets or nationally aren't merited. Opponents of the deal also have an opportunity to sit down with the regulators and make their cases for why the deal should be blocked, or at least come with conditions. MetroPCS' position Spectrum holdings aren't the only limits regulators might put on AT&T. While Sprint Nextel Corp. has said the deal shouldn't be approved under any conditions, Richardson-based MetroPCS Communications Inc. has said there are terms under which it could accept the merger. In June, the prepaid carrier filed a formal request with the FCC to impose three conditions on AT&T for approval of the T-Mobile deal. "The merger will harm consumers, transform the wireless industry by upsetting the delicate competitive equilibrium that has developed for mobile wireless broadband service and will re-create the wireless duopoly," MetroPCS chairman and chief executive Roger Linquist said in a statement at the time. But if the FCC and Justice Department do approve the deal, MetroPCS said, AT&T should divest some of its wireless airwaves to other carriers, guarantee "reasonable" roaming fees to competitors and not sign exclusive deals to get certain phone models, as it initially did for Apple Inc.'s iPhone. "If such conditions are not agreed to, the FCC must deny the merger," Linquist said. Many states are also looking into the deal. They can't block the merger outright, but if there's a consensus that certain conditions are needed to protect consumers, regulators are likely to adopt them, experts say. Texas' Rick Perry is among several governors who have endorsed the T-Mobile acquisition. But the Texas attorney general's office is one of at least nine state attorney general offices around the country that have asked the companies involved to submit information about the impact of the purchase. The attorneys general of Arkansas, Utah, Alabama, Georgia, Kentucky, Michigan, Mississippi, North Dakota, South Dakota, West Virginia and Wyoming released a letter last week supporting the deal, highlighting AT&T's claim that it will be able to cover 97 percent of the U.S. population with its 4G service if the deal goes through, 55 million more people than it could cover without T-Mobile's assets. But the attorneys general also said that some conditions might be required. "Given the substantial and far-reaching benefits that this merger will have for customers, in our states and across the country, we urge expeditious review and approval of this merger, with appropriate and carefully crafted merger-specific remedies and conditions," the group wrote in a letter to the Justice Department and FCC. Opposition view Public Knowledge is a Washington, D.C.-based public interest group that focuses on tech issues. It opposes the AT&T deal, regardless of conditions. Harold Feld, legal director for the group, said the problem is that the acquisition would give AT&T an overwhelming national advantage, regardless of regional differences. "In the wireless industry, usually what happens is the Justice Department says, 'You've got these 18 markets or 20 markets where you won't have enough competitors left, so if you sell off the holdings of the company being acquired in these markets, that would be OK,'" Feld said. "The problem here is you're talking about a national level of concentration." AT&T has 98.6 million wireless customers, and T-Mobile has 33.6 million. Verizon has 106.3 million. Not only would the T-Mobile deal allow AT&T to leapfrog Verizon for first place in wireless subscriber count, it would also concentrate about 80 percent of the U.S. wireless industry in the hands of AT&T and Verizon. AT&T argues that even if the deal is approved, most shoppers will have four or more wireless carriers offering service in their regions. But critics say the smaller outfits are generally less competitive, either because of a weaker selection of phones or the inability to offer national wireless coverage that matches what the larger carriers can provide. What's more, Feld said, conditions are often hard to enforce after a deal is approved, or the acquiring company can make it hard for consumers to know they even exist, as when a company is required to offer a low-cost service plan but doesn't advertise it in any way. It will probably be months before a decision comes down one way or another and specific conditions become public. AT&T expects the deal to be approved by the first quarter of 2012. Kagan, the telecom analyst, said the deal is likely to be approved, if for no other reason than that AT&T will bargain as much as it needs to in order to get a federal seal of approval. "All AT&T really wants from T-Mobile is the spectrum," Kagan said. "I think they could spin off the rest of the company, and they would still be satisfied with the spectrum this time." The merger Dallas-based AT&T said in March that it wants to buy T-Mobile from German parent Deutsche Telekom AG for $39 billion. The Federal Communications Commission and the Justice Department are reviewing the deal to determine whether it is in the public interest and does not violate antitrust laws. Both federal entities could impose certain conditions before signing off on the deal. Among the possible conditions: AT&T could be required to sell off chunks of T-Mobile's business or bits of its wireless spectrum in some cities or regions where regulators fear AT&T would otherwise control too much of the market. AT&T could be limited in how much it could charge competitors to allow their phones to "roam" on AT&T's network. AT&T could be barred from signing exclusive contracts for new phones, such as it had with Apple's iPhone for several years. SOURCE: Dallas Morning News research Wireless customers The four big carriers and their current customers: AT&T: 98.6 million T-Mobile: 33.6 million Verizon Wireless: 106.3 million Sprint Nextel: 52 million Total U.S. wireless subscriber connections: 302.9 million-- --As of December 2010, according to the trade group CTIA SOURCES: The companies; CTIA To see more of The Dallas Morning News, or to subscribe to the newspaper, go to http://www.dallasnews.com. Copyright (c) 2011, The Dallas Morning News Distributed by McClatchy-Tribune Information Services. For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com. |