N.Y. to scrutinize AT&T and T-Mobile merger

New York Attorney General Eric Schneiderman said today he will look closely at AT&T's proposed deal to purchase T-Mobile USA for $39 billion.

Schneiderman's office released a statement assuring that it "will undertake a thorough review of AT&T's acquisition of T-Mobile." He will analyze the merger for potential anticompetitive effects on consumers and businesses in the state, the statement read.

AT&T's proposed purchase of T-Mobile was announced a little more than a week ago and would combine the second-largest wireless operator with the fourth-largest operator. With T-Mobile's customer base, the new company would have more than 130 million subscribers, making it thelargest wireless operator in the U.S.

Schneiderman's office believes that the merger could open the door to a "near duopoly shared by the merged firm and Verizon." The AG's office noted in its statement that if this merger is permitted, AT&T and Verizon would control nearly 80 percent of wireless subscribers in the U.S.

In particular, Schneiderman believes the deal could have negative effects in areas of New York such as, Rochester, Albany, Buffalo, and Syracuse, where there are limited choices for cell phone service.

"The last thing New Yorkers need during these difficult economic times is to see cell phone prices rise," Schneiderman said in the statement. "Affordable wireless service and technology, including smart phones and next-generation handheld devices, are the bridge to the digital broadband future. We want to ensure all New Yorkers benefit from these important innovations that improve lives."

The federal government will also be looking closely at this merger. Both the Federal Communications Commission and the U.S. Department of Justice must give their stamp of approval before the merger can be completed.

AT&T and Deutsche Telekom, T-Mobile's parent company, said when they announced the merger that they expected the review process to take a year.

AT&T said in a statement that it looks "forward to sharing information with the AG's office." T-Mobile did not respond to a request for comment.

While the transaction must be approved by the FCC and the DOJ, state governments can also play an important role in a merger of this size, said Larry Downes, a consultant, author, and contributor to CNET.

"State government review of mergers is far from symbolic," he said in an e-mail. "Though companies don't generally require approval from state AGs the way they do (above a certain size) from the feds, states have the power to bring antitrust lawsuits."

Downes said antitrust concerns are not restricted to federal laws. In fact, the Microsoft antitrust lawsuit was largely led by state attorneys general, who were the ones who killed an effort to settle the case, Downes added.

States, along with the federal government and private parties, can bring antitrust action against a company. The implied threat by the New York attorney general's office is that if the state investigation is not happy with the antitrust implications of the deal, it will sue AT&T in court asking for an injunction to block the merger. This could lead to New York and other states being involved in crafting concessions that will become part of the FCC's and/or DOJ's conditions for the merger.

In this case, the states may actually have more pull than in other types of antitrust cases, because communications services are regulated not only by the federal government, but also by state public utility commissions. These state entities are involved in rate setting, cell tower siting, and other infrastructure improvements. States also often deal with consumer complaints.

"That provides additional leverage for the state AGs to get concessions before the merger is approved," Downes said.

Better or worse for consumer?
Sprint Nextel, the nation's third-largest wireless provider, is among the most vocal opponents to the deal. Last week, at the CTIA 2011 trade show in Orlando, Fla., Sprint's CEO Dan Hesse said he felt the merger would be anticompetitive. Sprint, which had about 50 million customers at the end of 2010, would be dwarfed in comparison to AT&T, which will have nearly 130 million customers if the deal is completed.

Sprint's Hesse said he hoped regulators would take a close look at the deal. But on Monday, the company took an even harder line and flat out asked the government to block the deal.

Vonya McCann, Sprint's senior vice president of government affairs, said the company would fight AT&T's attempt to create a new "Ma Bell duopoly."

"Sprint urges the United States government to block this anticompetitive acquisition," she said. "This transaction will harm consumers and harm competition at a time when this country can least afford it."

AT&T argues the merger will actually benefit wireless customers. The company claims it will improve coverage and service quality for AT&T and T-Mobile USA customers. And using spectrum that T-Mobile acquired in 2006, it will allow AT&T to provide more coverage of its new 4G LTE network.

"As we said last week, we strongly believe that this transaction is good for AT&T customers and T-Mobile customers, and is very much in the public interest given the benefits it will bring to 95 percent of all Americans," Jim Cicconi, AT&T senior executive vice president of external and legislative affairs, said in a statement. "With regard to Sprint's recent statements about our transaction, we have always found that the most constructive course is to focus on our own strategies for serving our customers and building our business rather than becoming distracted by challenging the business strategies of others."

And Sprint may have a hard time being heard in Washington, D.C., and in state capitols. AT&T spends about six times more on lobbying than Sprint, The Wall Street Journal reported today. In 2010, Sprint allocated $2.5 million to lobbying, according to campaign contributions database OpenSecrets.org. Meanwhile, AT&T spent $15.3 million.

Sprint will likely try to get regulators to evaluate the deal on a national basis. In that context, competition is dropping from four major players to two major companies and a third that is much smaller. But AT&T will likely argue that the deal should be evaluated on a market-by-market basis. In this case, AT&T argues that most consumers have five and six competitors in some of the largest markets.

This is how the FCC and DOJ evaluated the $28.1 billion merger between Verizon Wireless and regional carrier Alltel Wireless in 2008 and 2009. Instead of analyzing that merger on a national basis, the FCC analyzed each individual market where Verizon and Alltel operated. And in markets where there was too much concentration, the FCC required that the Verizon sell those wireless assets. All told, Verizon agreed to sell operations in 105 markets where Alltel also operated.

Updated 12:55 p.m. PT: with additional background information and comments.