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AT&T spars with rivals over T-Mobile merger

No love lost at US Senate hearing

Internet Security Threat Report 2014

During the $39bn squabble in a US Senate hearing room about whether AT&T's proposed acqusition of T-Mobile should pass antitrust muster, it was no easy feat to sift fact from fiction – although it was easy to discern that the stakes were high and the arguments passionate.

"First and foremost, this transaction is about consumers," promised AT&T president and CEO Randall Stephenson in defense of the acquisition at the Wednesday hearing. Stephenson may have described the acquisition as a "transaction", but one of his opponents – Victor Meena, president and CEO of Cellular South – preferred the less-neutral term, "takeover".

Stephenson described the proposed deal as being "about keeping up with consumer demands, specifically. It's about having the capacity to drive innovation at competitive prices, and most important it's about giving consumers what they expect – and that's fewer dropped calls, faster speeds, and access to high-speed, fourth-generation mobile internet service, whether they live in a large city, a small town, or out in the country."

Philipp Humm, the president and CEO of T-Mobile USA, painted his company as being in need of AT&T's help. After first telling the committee that he has only been CEO since November 2010 and that the company is just beginning to right itself after two years of decline, he stated that the results of his team's rebuilding efforts have been "mixed," with revenues stabilizing but subscriber losses continuing.

"Returning the business to growth, however, will not be sufficient to secure T-Mobile's strategic future," he said. "As data usage continues to explode, spectrum is becoming a constraint to our business, with T-Mobile facing spectrum exhaust over the next couple of years in a number of significant markets.

"Moreover," he added, "our spectrum holdings will not allow us to launch LTE." He ended his woe-is-us remarks by saying: "T-Mobile's parent, Deutsche Telekom, is not in a position to finance the necessary large-scale investment in the US for T-Mobile to really remain competitive."

Hooking up with fellow GSM-centric provider AT&T, Humm said, will solve a number of T-Mobile's problems through "extensive synergies," and "will greatly benefit the American economy, consumers, and particularly T-Mobile customers."

Sprint Nextel's CEO Daniel Hesse saw the benfits of acquisition in quite a different light. "I respect Randall and Phillip," he told the assembled senators. "They are doing their jobs, maximizing value for their shareholders. Unfortunately there are only three beneficiaries of the proposed transaction: the shareholders of AT&T, Verizon, and the sole shareholder of T-Mobile USA, Deutsche Telekom."

Cellular South's Meena agreed. "Over the past several weeks, we have carefully reviewed this proposed takeover. We can find nothing good about it. It's bad for consumers, it's bad for jobs, it's bad for competition," he said. "If regulators approve this acquisition, all that remains is the end game, where the remaining non-Bell carriers patiently wait their turn to be acquired or bled dry by the biggest two carriers."

Gigi Sohn, president and cofounder of the digital-culture public-interest group Public Knowledge, was equally blunt. "This transaction is a pivotal moment in US antitrust law. If that law means anything, this classic merger of one company buying out a smaller competitor in the same business must be denied."

Meena provided the senators with his version of the history of the mobile phone industry. When he had first started in business, back in the late 1980s, he said, there was a local duopoly in every market. Because of this, consumers had only two choices of wireless service, and "carriers virtually had no market incentive to innovate, or improve service offerings."

"In a duopoly," Meena contended, "the market can quickly reach equilibrium, and if both providers are reasonably happy with their positions, that's how things will stay."

That static period ended in the late 1990s, according to Meena, when "the wireless industry began to awaken." The FCC auctioned PCS licenses to new competitors who "built networks, attracted customers, and just generally disrupted established markets."

That disruption, he said, shook the duopolists from their comfortable positions, and a new round of price cuts, feature growth, and coverage-area increases began. The reason for these consumer benefits, Meena argued, was the end of the local duopoly system of wireless coverage.

Now, however, he sees the duopoly coming back with a vengance, and on a national level. In the middle of the last decade, he said, "we began to see Humpty Dumpty being pieced together again. Through unfettered mergers and acquisitions, it was only a matter of time before the former Ma Bell reconstituted herself into two Bell sisters of the wireless industry: AT&T and Verizon," he said.

According to Meena, AT&T's new-found clout has allowed it to withold roaming agreements, "balkanize" spectrum in order to dominate the 700MHz band, and wrangle exclusivity agreements on new phones – a competition-stifling activity mentioned not only by Meena, but also by Hesse, Kohl, and Senator Amy Klobuchar (D-MN) as an advanatge that smaller, regional carriers don't have.

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