DoJ Approves Cingular Acquisition of AT&T Wireless

The Justice announcement comes as the FCC readies its own merger order, which could be ready as early as today (Tues.). Chmn. Powell is to address the wireless industry at CTIA’s fall conference today (Tues.) in San Francisco. Sources said Comr. Copps had pushed the past few days to make certain the order addresses his concerns about the merger’s effect on wireless-wireline competition. The FCC order is expected to pass 5-0, with Copps likely issuing a partial dissent.

The DoJ said the merged company would have to sell AWS spectrum and customer contracts in: Litchfield, Conn.; Fulton, Ky.; Oklahoma City and Ponca City, Okla.; Lufkin and Nacogdoches, Tex. In Conn., Ky. and Tex., the merged company may retain some AWS spectrum. The company must also divest minority equity interests in wireless providers in: Athens, Ga.; Topeka, Kan.; Shreveport and Monroe, La.; Pittsfield, Mass.; St. Joseph, Mo. Minority interests in Kan., La. and Mo. may be retained if “those interests are made irrevocably and entirely passive to the satisfaction” of DoJ, the agency said.

DoJ said it also had concerns about wireless broadband services and CW must divest 10 MHz of contiguous PCS wireless spectrum in Detroit, Knoxville and Dallas-Ft. Worth. In Knoxville, the company may restructure AWS relationships with other spectrum licensees in the market to allay DoJ concerns. “Without these divestitures, wireless customers in these markets would have had fewer choices for their wireless telephone service and face the risk of higher prices, lower quality service, and fewer choices for the newest high-speed mobile wireless data services,” said Hewitt Pate, DoJ Antitrust Div. chief.

Consumers Union (CU) and Consumer Federation of America (CFA) said the merger would create higher prices and diminished services for consumers. The consumer groups claimed 3 harmful effects on competition would result from the merger: (1) The loss of a major national competitor “could” create higher prices and decreased quality for wireless customers nationwide. (2) Cingular’s relationship with its owners -- SBC and BellSouth -- would make it unlikely that Cingular would compete with its parents local wireline service in Cal., the South and the Midwest. (3) The precedent to allow one wireless provider to control 70 of 189 MHz of available spectrum in one market could be harmful. The DoJ decision would make it “virtually impossible” for the DoJ to block future mergers by Verizon Wireless or the other providers, the consumer groups said in a joint statement. The groups said the merger approval signals that “Verizon can bulk up in the same manner, leaving only enough spectrum for one potential competitor -- even with currents plans to auction off new spectrum.”

Mark Cooper, CFA dir.-research, said DoJ’s approval stems from the FCC’s decision to rescind a spectrum ownership cap. Consumer groups’ concerns seemed to focus heavily on the prospect of RBOC-controlled wireless providers being forced to compete with their own wireline presence. “This merger is significant because this new Cingular Wireless behemoth is actually owned by 2 of the dominant local phone companies in the country,” said Gene Kimmelman, CU dir.-public policy. “It just doesn’t make sense to expect the local phone companies to compete against itself with its wireless product. Rather, it likely will raise prices for both local and wireless services because it can control the market.”

Cingular said the merger will allow the company to provide better services to customers. “This merger will create a premiere provider that is very well equipped to meet the most demanding needs of wireless customers today and in the future,” said Stan Sigman, CW CEO. The company said the merged entity will have licenses to operate in 49 of the 50 states and will serve the top 100 metropolitan areas after the completion of this merger and a recently announced deal with Triton PCS.

“This is what we expected,” said Precursor Group analyst Rudy Baca: “We expect the FCC to order spectrum divestitures in a few more markets,” but those will also be limited. Baca noted that in its analysis the FCC looks not only at competitive effects overall but also at competition in spectrum markets, which may make its order more stringent. “This is the loss of a wireless competitor but it is the loss of one of 9 and one of 6 nationwide,” Baca said, referring in the first instance to major carriers including regionals.

Legg Mason analyst Rebecca Arbogast said the divestitures ordered seemed quite “light-handed” and should please the merging companies. “We have a handful of complete divestitures, but they're small in numbers and the markets themselves are quite small,” she said: “These are not major urban areas.” Arbogast said she had studied 2 of the markets where Justice is ordering spectrum sales, Dallas and Detroit. “With the 10 MHz divestitures they've got a lot of spectrum left,” she said.

Medley Global Advisor analyst Jessica Zufolo nonetheless expects the 2 companies to examine the merger orders before saying they'll proceed as planned. “Once an item is issued, the parties will spend a great deal of time studying the decision to see whether it is something they can live with,” she said.

“I don’t think this will surprise anyone,” said one regulatory attorney who has followed the case. “We have heard for some time that Justice was going to recommend a relatively lenient order and that’s what you see today seemingly. FCC won’t be far behind. “ Cingular and AT&T Wireless have to comply with both merger orders.