FCC begins review of AT&T's T-Mobile deal

The Federal Communications Commission has formally started the process for reviewing the proposed $39 billion merger between AT&T and T-Mobile USA that was announced last month.

The FCC has posted its public notice that establishes procedural rules for the review process and will allow the public to weigh in on the proposed merger. AT&T and T-Mobile will file their formal applications by the end of the month as the FCC considers transferring wireless licenses.

The agency is still not discussing specifics of the review process, but earlier today it held a press conference in which it explained broadly how the agency will evaluate the deal. Specifically, the FCC will do two things. First it has to determine if the deal will meet specific requirements in the Communications Act and FCC rules. And second it will determine if the merger is in the public interest.

The agency will work in conjunction with the Department of Justice, which will be evaluating the merger to ensure it doesn't violate antitrust laws.

For the FCC its "public interest" evaluation will include things such as how the merger will affect competition. This is broader than the standard antitrust review and will consider whether the deal will encourage the deployment of new services.

The FCC will use a test called the Herfindahl-Hirschman Index (HHI) to measure concentration in a particular market. The commission will also evaluate spectrum coverage, and it will look at how much spectrum is available in certain markets for mobile services. It will evaluate what percentage of that spectrum is held by AT&T and T-Mobile.

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AT&T has argued that the T-Mobile spectrum will help it keep up with growing demand for wireless data services. The company plans to use T-Mobile's AWS spectrum acquired in 2006 for its 4G LTE network. AT&T will also use spectrum it acquired in the 2008 700MHz auction for this network as well. Specifically, AT&T says that the T-Mobile spectrum will help the company alleviate congestion in already crowded markets such as New York City.

In a Q&A with The Washington Post recently, AT&T executive Jim Cicconi said that "without additional spectrum, by the fall of next year, we will be significantly constrained in New York City and elsewhere."

But consumer groups argue that AT&T has plenty of unused spectrum. They also say that if the deal is approved, that pricing will go up. T-Mobile is considered a low-cost provider of wireless service. In fact, yesterday the company announced an "unlimited" calling, texting, and data usage plan--which is in fact limited to 2GB of data per month--for $80 per month. This is $20 less per month less than Sprint, its closest competitor. Meanwhile, a comparable plan from AT&T, which also limits data to 2GB and charges customers if they go over that limit, is $115 a month.

To help ensure the public interest, the FCC may require certain conditions for the approval of the merger. The agency imposed conditions on the Verizon-Alltel merger and the merger between Comcast and NBC Universal. While those conditions are supposed to help the deal meet public-interest goals, they do expire after a certain period of time. Some of these conditions may require AT&T to adhere to certain Net neutrality regulations, as was the case in the Comcast-NBCU merger, or it may require the company to divest some of its spectrum and customers in certain markets, like the agency required in the Verizon-Alltel deal.

If the FCC finds that the deal is not in the public interest, a hearing will be held before an administrative judge.

The FCC hasn't outlined a specific timetable for reviewing the merger. But the general rule of thumb is that the agency tries to complete its process within 180 days. But most experts believe the merger will take anywhere between a year and 18 months. The time clock on the merger begins after AT&T and T-Mobile have filed their applications.

Consumer groups and Sprint Nextel, the third-largest wireless operator in the country, oppose the deal and want regulators to block the deal. Congress is expected to weigh in on the debate as well. There is a hearing scheduled for May 11 before the Senate Judiciary Committee.