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AT&T/T-Mobile Merger: Senators Question Impact on Regional Carriers

Some U.S. senators are asking a question that is likely to figure into the Department of Justices antitrust analysis of AT&Ts $39 billion acquisition of T-Mobile USA: Can regional mobile operators compete effectively after the megamerger?

Does the fact that the small regional carriers have to pay AT&T and Verizon millions of dollars in roaming fees seriously harm their ability to compete?” asked Herb Kohl (D.-Wis.), chairman of the Senate Judiciary Subcommittee on Antitrust, Competition Policy & Consumer Rights.

Further, these regional phone companies often do not have access to the newest and most in-demand smartphones that consumers want,” Kohl added in a statement during a hearing on Capitol Hill.

AT&T CEO Randall Stephenson has cited regional mobile operators like U.S. Cellular and Cellular South as evidence of ample competition in the U.S. wireless market, and the company has emphasized the importance of analyzing the level of competition on a local level in response to criticism that AT&T and Verizon Wireless will control nearly 80 percent of the market if the U.S. regulators approve the merger.  

But some senators challenged the view that competition is on a local rather than a national level.

Isnt it true you have seen significant growth in new customers in large part because you were able to negotiate an exclusive handset deal for the iPhone with Apple, a large national company, that would not have even considered launching their new phone with a small regional player?” Sen. Al Franken (D.-Minn.) asked AT&T CEO Randall Stephenson during the hearing.

Responded Stephenson: I would say no. Look at Europe.”

You dont think that Apple gave you an exclusive on this because and they would have given an exclusive to a regional player and not to one national player,” Franken shot back.

Its not as likely,” Stephenson conceded. But in Europe they did spread it around in Europe.”

Franken then said the U.S. wireless market is a national business, as reflected in AT&Ts advertising messages, and he asked Stephenson why AT&T is calling for U.S. regulators to analyze the markets on a local level.

First of all, this is the way the Department of Justice has required these transactions to be reviewed. They have established that these buying decisions are made at the local level,” Stephenson responded.  Our experience is the buying decision is made at the local level. Is having a national coverage, a national footprint important? I think its very important. I believe thats why Mr. Meena advertises his national map off of his website.”

Stephenson was referring to Victor H. Hu” Meena, president and CEO of Cellular South, a Mississippi-based mobile operator that has voiced strong opposition to the merger of AT&T and T-Mobile USA.

Through a flurry of mergers and acquisitions we now find ourselves on a glide path toward Ma Bell reconstituting herself into the two Bell Sisters of the wireless industry: AT&T Wireless and Verizon Wireless,” Meena said in a statement Wednesday before lawmakers.

In the meantime, AT&T has used its enormous scale to control device and infrastructure vendors, limit or eliminate roaming, and slow the deployment of 4G LTE technology in the U.S.,” added Meena, who also serves as the chairman of the Rural Cellular Association (RCA).

On Capitol Hill, not everyone was entirely critical of the merger.

Sen. Mike Lee (R.-Utah) said the marriage of AT&T and T-Mobile may provide significant immediate efficiencies that will enable enhanced service quality, fewer blocked or dropped calls, and increasing data speeds.”

But he raised a critical question”: whether the smaller regional carriers can effectively compete in a post-merger market, helping to discipline prices, preserve consumer choice, and promote innovation.”

Lee cited two potential roadblocks: regional carriers reliance on large national operators for data roaming access and their competitive disadvantage in gaining access to the most popular and desirable handsets.”

National providers with large volume and advertising budget(s) are better positioned to negotiate exclusive contracts for cutting edge devices like the iPhone and lower prices for other handsets purchased in bulk,” said Lee, a ranking member on the antitrust subcommittee.

AT&T has noted that there is plenty of competition in local markets in response to claims that the merger would create a duopoly between AT&T and Verizon Wireless.

Meena of Cellular South disputed AT&Ts interpretation of the wireless market in the U.S.

The U.S. wireless market is national, not regional,” he said.

The AT&T service plan and device prices that Cellular South competes against in Jackson, Miss., are exactly the same as the service plan and device prices that AT&T offers in Arlington, Va.  With respect to operating costs, it is nationwide scale that determines the ability to acquire and the cost of wireless devices and network equipment,” Meena added. Additionally, Cellular South and other competitive carriers must be able to offer customers nation-wide use of their devices. There is no market for regional or local calling plans.”


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