Skeptical senators grill chiefs of AT&T and T-Mobile about proposed merger

Reporting from Washington —  Tough questioning by skeptical senators showed the chief executives of AT&T Inc. and T-Mobile USA just how difficult it’s going to be to get regulatory approval for their proposed $39-billion merger.

“The more providers of cellphone service, the lower the price, the better the quality of service and the more innovation that results,” said Sen. Herb Kohl (D-Wis.), chairman of the Senate’s antitrust subcommittee.

“So the burden will squarely be on AT&T and T-Mobile to convince us why this merger is desirable, how it will benefit consumers, and to put aside our concerns that it may very well harm competition,” he said Wednesday during the first congressional hearing on the huge wireless deal.

AT&T Chief Executive Randall Stephenson and T-Mobile CEO Philipp Humm struggled to do that.

They told senators that the merger would benefit consumers by allowing the combined company to deliver next-generation wireless service to more people than they could provide separately as available airwaves become scarce.

And they said the improved and expanded service would continue the wireless innovation that has driven prices down and would help increase high-speed wireless Internet access, a major goal of the Obama administration.

“It’s a very basic concept that, in any industry, greater capacity is a fundamental driver of competition,” Stephenson said. “Over the last decade, U.S. wireless prices have steadily come down, and this transaction will allow that to continue.”

Several senators weren’t convinced, and warned that the consolidation would push the U.S. wireless industry toward the type of monopoly that the old AT&T monopoly, often called Ma Bell, once had on the land-line phone business.

The deal, announced in March, would combine the reorganized AT&T, the nation’s second-largest wireless provider, with No. 4 provider T-Mobile.

The new behemoth would vault ahead of Verizon Wireless to become the nation’s largest carrier. AT&T and Verizon would control nearly 80% of the market. The only other national provider, Sprint Nextel Corp., would be a distant third.

“I fear that, if approved, the merger would take us … one step away from the monopoly market we had under Ma Bell,” said Sen. Al Franken (D-Minn.), adding that he believed wireless prices would rise and thousands of jobs could be lost.

The subcommittee’s top Republican, Sen. Mike Lee of Utah, said although he generally believed that the government should stay out of the marketplace, he shared some of Kohl’s concerns and wanted the proposed merger to be reviewed carefully.

Congress has no vote on the deal, but opposition from lawmakers could influence regulators.

The Justice Department and the Federal Communications Commission are reviewing the deal to determine whether it would harm wireless competition and would be in the public interest. Analysts have said the deal faces high hurdles in the Obama administration, which has vowed to be tougher on antitrust issues.

“I think there’s still probably a lot of folks at [Justice] and the FCC who aren’t persuaded yet they should approve the deal,” said Rebecca Arbogast, an analyst at brokerage Stifel, Nicolaus & Co. “I still think there’s a material risk the deal might get blocked, but I think it’s more likely that it gets passed.”

Any approval probably would come with tough conditions, such as requiring AT&T to sell airwaves in some markets to maintain competition. If those conditions are too restrictive, AT&T might balk and pull out of the deal, she said.

Kohl said that even if concessions were required, he’s not convinced the deal should be approved.

Neither is Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.), who was skeptical about AT&T’s promises that the deal would lead to more service in rural states such as his.

His committee, which includes the antitrust panel, will push regulators to perform an “exhaustive and careful analysis,” he said.

“I expect the Justice Department is leery of creating a market where other companies have to merge in order to survive,” Leahy said.

Sprint Chief Executive Daniel Hesse warned that the deal would create a market dominated by AT&T and Verizon — a duopoly that would lead to higher prices for consumers.

“AT&T’s acquisition of T-Mobile will turn back the clock on wireless competition,” he told the subcommittee. “It will … put Ma Bell back together again.”

In that environment, Sprint would be a likely takeover target, Hesse acknowledged.

Such a move would leave the nation with only two nationwide carriers. They would have huge clout to sign more exclusive deals on innovative devices, such as AT&T had with the Apple iPhone, and those deals would hobble small, regional wireless companies as well, Hesse said.

Reducing the number of national wireless providers would be alarming, Kohl said.

“If we go from four to three and then from three to two, that’s pretty serious,” he said.

Victor H. Meena, chief executive of Cellular South Inc., a wireless provider in Mississippi, said the deal would cause small carriers like his either to “be acquired or bled dry” by AT&T and Verizon because they would be unable to compete with the giants’ market clout.

“We can find nothing good about it,” said Meena, who also chairs the Rural Cellular Assn. trade group. “It’s bad for consumers. It’s bad for jobs. It’s bad for competition.”

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