Sharp Scrutiny for Merger of AT&T and T-Mobile
By EDWARD WYATT
Published: March 21, 2011


WASHINGTON — Mega-mergers may be celebrated on Wall Street on the theory that bigger is better. But the proposed merger of AT&T and T-Mobile is likely to face intense scrutiny by regulators, lawmakers and consumer advocates.

Julius Genachowski, the Federal Communications Commission chairman, and Christine Varney, assistant attorney general.

The review of the merger, one of the largest deals since the 2008 financial crisis, will also be a test for the White House. During his campaign, President Obama criticized the Bush administration’s record on antitrust review, and promised to increase scrutiny of merger proposals.

Some analysts say it is too early to see if the merger will pass muster. Part of the difficulty stems from the fact that the two primary agencies that will oversee any merger — the Federal Communications Commission and the Justice Department’s antitrust division — look at it with different goals in mind.

The Justice Department will chiefly examine whether competition among wireless mobile phone providers would remain sufficient after a merger. The department gave some hint to its thinking when it told the F.C.C. last year that the agency needed to use its “policy levers” to encourage more competition among wireless companies, particularly in wireless broadband access.

The F.C.C., on the other hand, has a goal of protecting the public interest in allocating use of the public airwaves, which it does in part by promoting competition. For example, one objective involves pushing the big wireless companies to allow smaller competitors to use their networks for data roaming services. Such policy initiatives give the F.C.C. more flexibility to consider conditions that it could apply to a merger to make it more palatable.

“Normally, competition and the public interest go hand in hand,” said Bert Foer, president of the American Antitrust Institute, a nonprofit agency that generally argues for more competition. But federal courts have recently sided with regulatory agencies instead of antitrust enforcers when conflicts occur, something that perhaps will give the F.C.C. the advantage in setting the conditions under which to approve a merger.

Congress, too, is likely to play a part in scrutinizing the proposed merger. Several Congressional committees have already announced plans to review the deal.

Senator John D. Rockefeller IV, a West Virginia Democrat who is chairman of the Senate Commerce Committee, said it was “absolutely essential” for both the Justice Department and the F.C.C. to “leave no stone unturned in determining what the impact of this combination is on the American people.”

Most recently, lawmakers and the White House faced stiff opposition from advocacy groups over the recent merger of Comcast and NBC Universal. That deal was approved by the Justice Department and the F.C.C. with several conditions that subject the expanded company to additional oversight, but many consumer groups and liberal advocacy organizations were unsatisfied with those terms.

“I’m not a huge fan of weighing down a merger with a dozen or more conditions,” said Gigi B. Sohn, president of Public Knowledge, a consumer advocacy group that sharply criticized the proposed merger of AT&T and T-Mobile. “As a regulator, you have to ask yourself how a merger could be in the public interest if you have to do all those things to it to get it done.”

AT&T is already pre-empting any concerns from lawmakers. Its publicity materials announcing the merger (including a dedicated Web site, mobilizeeverything.com), pulled language directly from the president’s State of the Union Message with references to providing wireless high-speed Internet to nearly all Americans in the next five years. And to help Senator Rockefeller with his deliberations, AT&T prominently displayed in its online materials a map of how the merger would expand service in West Virginia.

AT&T contends that the wireless phone market is highly competitive, with 18 of the 20 largest United States markets each having five or more wireless competitors. That may help AT&T, as the Justice Department has traditionally looked at local competition when considering whether a proposed merger will substantially reduce consumer options, said Michael L. Weiner, a partner and co-chairman of the antitrust practice at Dechert, an international law firm.

But national competition also plays an important role in the wireless market. Many mobile phone customers base their buying decisions on whether they will have to pay expensive roaming charges when they travel out of their home area. And after the merger, AT&T and Verizon will between them control nearly 80 percent of the wireless market, with the third-largest competitor, Sprint, lagging far behind.

When AT&T Wireless merged with Cingular in 2004, it emphasized the national benefits of the joined companies, Mr. Weiner said. Now, it is making the opposite argument.

“We’re very confident that we can achieve a successful regulatory review,” Wayne Watts, a senior executive vice president and general counsel at AT&T, said Monday. “The facts show significant, unique public interest benefits from this transaction.”

AT&T also said that it expected to discuss some divestitures with regulators to get approval for the deal. Most likely, those would take the form of the company giving up some wireless airwaves in certain cities where the merger would leave too few competitors.

The F.C.C. could use its leverage over the parties in discussing those possible conditions, under the theory that a company trying to get approval for a merger is unlikely to strongly oppose its chief regulator’s policy goals.

For example, the agency has been trying to get the large wireless companies to allow customers of other providers to use their networks for data roaming, much as they allow for roaming for voice services. The big providers have been reluctant to do so, because data services use much more bandwidth and, as AT&T customers with iPhones know, that can greatly slow a network.

The F.C.C. also has voiced its desire to expand its policy of net neutrality, which requires that Internet service providers not slow or block specific content, to apply to wireless broadband services as well as to wired services.

Though the F.C.C.’s position on net neutrality for wired Internet service was opposed by many telecommunications companies, AT&T supported it. This month, amid its talks with T-Mobile, AT&T’s chief lobbyist, James W. Cicconi, testified to the company’s support of the F.C.C. policy before a hostile House subcommittee.