There is one overarching imperative that drives this merger: giving AT&T and T-Mobile USA customers the network capacity they need to enjoy the full promise of the mobile broadband revolution. The combination of these two companies, and their uniquely complementary networks and spectrum holdings, will create new capacity – the functional equivalent of new spectrum – to handle rapidly escalating mobile data traffic. Indeed, the capacity of the combined company will exceed that of AT&T and T-Mobile operating separately.
The winners will be America’s consumers because the extra capacity will enable us to offer them better service — faster data speeds and fewer dropped and blocked calls.
And with the scale, spectrum, and other resources generated by this transaction, the combined company will be able to offer Long Term Evolution, or LTE — the premier next-generation wireless broadband technology — to an extra 55 million people and more than 97 percent of the U.S. population, all without reliance on government funds. And that is a big win for rural America because it gives those communities the same high quality broadband service that consumers in urban areas will receive. It also means more jobs and more investment.
That investment will also be a win for the innovators in the high-tech industry, who need the bulked up infrastructure to support their next generation of bandwidth intensive applications and other innovative products and services.
For these reasons, the transaction has drawn tremendous support from across the political and industrial landscape. Among the many supporters are labor unions, including the CWA, the AFL-CIO, the Teamsters and others representing nearly 17 million workers. No transaction before the FCC in recent memory has ever garnered such broad support from organized labor.
This transaction has also received tremendous support from a broad cross-section of the high-tech community. These are the innovators whose very businesses depend on the availability of robust wireless platforms – and their support is a direct repudiation of claims that the transaction will harm competition, innovation and consumers. Indeed, the members of the high tech community are among the most sophisticated and informed users of wireless platforms; and they have a unique ability to speak to the merits of this transaction. They are the ones in the trenches every day investing, inventing and innovating. That so many of them voiced such strong support is compelling evidence of the transaction’s enormous economic and consumer benefits.
Opposing this transaction are Sprint and a few other wireless competitors, along with the same inside-the-beltway special interest groups that reflexively oppose all mergers. They tried gamely last Tuesday to spin the transaction’s enormous benefits as anti-consumer, anti-innovation and anti-competition. But the fallacy of their opposition is easily unmasked. Why do Sprint and other wireless competitors oppose this transaction? Because they are worried, as they claim, that the combined company will cut output, raise prices and stop innovating? I don’t think so. Those consequences could only benefit these carriers as well as their shareholders.
The reason they oppose the merger is because they would prefer to compete against a capacity-constrained AT&T and a standalone T-Mobile USA that lacks financial backing from its parent and has no clear path to LTE.
But it’s not just that their arguments are transparently inconsistent with their motives. Motives aside, their arguments don’t stand up to scrutiny. In the Joint Opposition we will file tomorrow at the FCC, we dissect in detail each of the straw men they advanced.
1) Network Capacity Crunch – Contrary to claims that our network capacity issues can be solved without this transaction, we detail the engineering principles that make the extraordinary capacity gains that the combination will yield possible – and nothing close to those gains would be possible without this transaction. In fact, AT&T is not only already doing the very things they claim we should be doing, but we are the industry leader in them. We have more Wi-Fi hotspots, for example, than any other carrier. And we are the only carrier that has created Wi-Fi hot zones in heavy use urban areas, like Times Square, to off-load traffic from our network. And when merger opponents say in one breath that we are not migrating our customers fast enough to LTE and in the next that we should repurpose the spectrum we are using for LTE to relieve congestion on our legacy networks, they lose all credibility.
The bottom line is that the combined company will be able to offer more output and higher quality service – and that’s a good thing for consumers even if our competitors don’t like it. We also demonstrate that, by relieving AT&T and T-Mobile from capacity constraints, the merger will expand output, which economists recognize means lower, not higher, prices.
2) The Duopoly Myth – From the beginning, merger opponents have ramped up the rhetoric, claiming, for example, that if this merger is approved, the wireless market will become a “duopoly.” The truth is that a “duopoly” signifies a market with only two sellers, and that is a flatly inapt description of the post-transaction U.S. wireless marketplace. Commission data shows that today ¾ of Americans have a choice of five or more wireless providers, so, at worst, after this merger they will have a choice of four. That is not a duopoly. And it is particularly ironic that Sprint is the leading proponent of the duopoly theory given that Sprint is boasting to Wall Street of its marketplace resurgence, including its recent largest number of net ads (over 1 million) in five years.
The duopoly myth can be exploded with a single fact: MetroPCS and Leap together added a remarkable 1.057 million net retail subscribers in the first quarter of 2011 for cell phones, smartphones, laptop USB adaptors, and other personal computing devices. That figure is greater than the combined net retail additions (postpaid and prepaid) by both AT&T and Verizon for these same types of subscribers (1.026 million) – all in the same quarter that Verizon debuted its version of the iPhone.
3) Contriving Conditions and Concessions – Of course there is the expected wish-list of non-merger-related “conditions” designed to extract regulatory concessions that the opponents have not been able to otherwise achieve. These include proposals to condition merger approval on concessions relating to pricing, mandatory resale, 700 MHz handset interoperability, special access, privacy, receipt of universal service funding, early termination fees, bill shock, and other broad policy issues. As the Commission has consistently found, such issues should be addressed, if at all, in industry-wide proceedings – not a company-specific merger proceeding.
In the end, opponents’ submissions are long on rhetoric and short on substance. As Benjamin Disraeli wisely said, “It is much easier to be critical than to be correct.” After a close review of the facts and evidence presented in this proceeding, we are confident that the Commission will agree that this merger will generate enormous benefits for consumers, workers and the economy, with no significant harm to competition.