Analysis: AT&T vision of wireless competition is tough sell

WASHINGTON Fri Mar 25, 2011 7:36pm EDT

The at&t logo is seen at their store in Times Sqaure in New York April 21, 2010. REUTERS/Shannon Stapleton

The at&t logo is seen at their store in Times Sqaure in New York April 21, 2010.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - AT&T (T.N) faces a tough pitch convincing regulators that its $39 billion deal to buy Deutsche Telekom AG's (DTEGn.DE) T-Mobile will not create a duopoly in the cell phone market.

The massive telecom company was clearly honing its pitch even as it came out of the gate.

When announcing the deal on Sunday, it said that in 18 of the 20 top U.S. local markets there are five or more local carriers, not so subtly telling regulators they should take a market-by-market look when assessing competitiveness.

AT&T chose not to focus on the fact that the deal would concentrate 80 percent of U.S. wireless contract customers in just two companies -- itself and Verizon Wireless.

Susan Crawford, who teaches at Benjamin N. Cardozo School of Law at Yeshiva University, waved away the AT&T argument.

"It's a red herring to say there are five in major cities," she said. "People buy mobile service for nationwide coverage. ... It's already a duopoly."

AT&T also stressed that it was making the deal to acquire spectrum, which is in high demand as technology becomes more mobile.

Unlike most companies announcing mergers that regulators question, AT&T did not argue that the deal would mean lower prices but said that the cell phone market was competitive, and would remain rough and tumble despite the proposed deal.

This is the argument that AT&T's legal team is expected to take to the Justice Department for its antitrust review. The Federal Communications Commission also must sign off on the transaction for it to go forward.

One person who agrees with AT&T is Jeff Eisenach, who teaches at George Mason University School of Law.

"The wireless market is extremely competitive," he said, arguing that the cell phone industry lent itself to monopoly to take advantage of economies of scale.

"You see prices are declining really rapidly. I have not noticed Verizon and AT&T acting like cozy monopolists lately," he said, pointing in particular at the companies' vigorous advertising campaigns.

But most antitrust experts interviewed said it will be tough to convince regulators that the deal will allow a competitive wireless marketplace to thrive, without significant asset sales by AT&T.

This is especially true since the government itself recently raised doubts about competition in the wireless industry, before the deal was announced.

The FCC in May 2010 issued an annual report that for the first time since 2002 did not describe the wireless industry as having "effective competition."

The industry leader is Verizon Wireless with about 31.5 of the market and AT&T with 28.5, trailed by T-Mobile (12.1 percent) and struggling Sprint Nextel (S.N) (17.9 percent), according to an FCC report issued last May.

Verizon Wireless is owned by Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).

While the four big companies have national reach, the smaller do not. These include MetroPCs (2 percent), US Cellular (2.3 percent) and Leap (1.4 percent), which owns Cricket, and some antitrust experts dismiss them as not truly competitive with the big companies.

"It's hobbled competition," said one veteran of the Justice Department's antitrust department.

Traditionally DOJ analyzes deals like this one by looking at local markets, said Bob Doyle, an antitrust expert with the law firm Doyle, Barlow and Mazard PLLC.

"However this deal, given the size and significance of both players, the government might be inclined to take a bigger picture and examine this deal on a national basis in which case you have a problematic four-to-three merger," he said.

"There could be several hundred localized markets where there could be divestitures in this case," he said.

(Additional reporting by Jasmin Melvin; Editing by Bernard Orr)

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Comments (13)
AngelicEnd wrote:
Has ANYONE ever seen Comcast and Charter in the same market selling against eachother? How about Dish network and DirectTV? There is no TRUE competition in the marketplace today. At least when it comes to Power, phone and television.

Mar 25, 2011 8:04pm EDT  --  Report as abuse
Dusty44 wrote:
The original AT&T had become a dinosaur when it was broken up. It quickly became obvious to the knowledgeable (and many others) that the destruction of Ma Bell had been something of a mistake. The economys of scale and the near monoploy was necessary to provide universal coverage and connectivity.

In the time since the telecom industry has coalesced back to the necessary form by way of market forces, a rebirth and renewal. There are (almost) two big players now and many small telecoms providing services in many niche markets that the big players mostly do not wish to be involved with. This is a good thing. Government needs to allow the market forces to work. The two big players and the lesser niche telecoms provide adequate competition within this industry.

Mar 25, 2011 8:29pm EDT  --  Report as abuse
Ducban wrote:
Intel and AMD were a duopoly if you can call it that for many years and yet Apple comes along and commands a whole new “genre”. And the CPU market competition is alive and well. An AT&T and Verizon duopoly is ok. It will stop companies from competing on the same level. This is technology folks not brick making. The more concentrated a company is to one technology, the greater the opportunity exists for new technology to arise. Is wireless the only way we communicate? not by a long shot. Application based VoIP is growing out of the woodwork and will only intensify if there are two hosts. WiFi is is becoming so ubiquitous, I plan on not buying a 3g/4g for my iPad. I will just hotspot to my Phone but only when LTE is deployed.
Bottomline, 2 carriers ok because it will spur competition on newer technologies that will piggyback on those two carriers. Its not more carriers that will make life better, its more tools that ride on those carriers that we need. If you are afraid, the two carriers will raise prices, let them. Because we will find ways to communicate without carriers or tunnel through the carriers. The challenge alone to do so is exciting.

Mar 25, 2011 8:56pm EDT  --  Report as abuse
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