AT&T-Dobson Order May Have Major Implications for Wireless Consolidation
The AT&T-Dobson Communications merger order could have long-term effects on the wireless marketplace, creating as it does a new, higher screen level for when a merger raises market power concerns, industry officials said. The order (CD Nov 16 p10) states that with the addition of 700 MHz spectrum to be auctioned next year, a merged carrier can hold up to 94 MHz of spectrum in a given market without triggering more detailed FCC review. The previous standard was 70 MHz. Sources said the provision was made part of the order at the suggestion of Wireless Bureau Chief Economist Walter Strack.
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The FCC no longer has a spectrum cap. But the higher standard could mean more mergers, though likely no combination of the big four -- AT&T, Verizon Wireless, Sprint Nextel and T-Mobile. It’s unclear whether the new standard opens the door to mergers not possible under the previous standard. The FCC cap of 45 MHz for each market was lifted Jan. 1, 2003, leading to a round of mergers starting with Cingular-AT&T Wireless.
“There has already been significant consolidation in the industry,” said Michael Nelson, analyst at Stanford Group. “The number of potential deals has been diminished.” But more consolidation is inevitable, Jessica Zufolo, analyst at Medley Global Advisor, said. “Ever since the FCC approved the Sprint/Nextel and Western Wireless/Alltel mergers, it really was a question of when more consolidation among smaller regional players would occur, not if,” she said. “The stand-alone players that remain are Centennial Wireless, Leap, MetroPCS and US Cellular. The short form filing window is now upon us, so anyone wishing to merge… may have to wait until the bidding ends sometime next March and maybe even later as carriers may hold off until after the dust settles over the 700 MHz auction.”
Commissioners Robert McDowell, Michael Copps and Jonathan Adelstein all questioned the finding, noting that the 700 MHz auction doesn’t start until January, with the effect on the market difficult to gauge.
McDowell questioned why the FCC felt compelled to add 700 MHz spectrum to the market screen. The order finds that 700 MHz band spectrum “not only is technically capable of supporting mobile services, but also is in many respects ideally suited for the provision of these services.” McDowell noted, “at this preliminary stage, we have little, if any, idea how auction winners will elect to use this spectrum.”
“While it is certainly important that we update our analytical tools from time to time, this action is decidedly premature and introduces an unnecessary level of complexity into the Commission’s market analyses,” McDowell said. “I also wonder how the new framework will affect participation in the forthcoming auction of 700 MHz spectrum.” McDowell noted that the FCC is behind in releasing the latest version of its report on the wireless market and competition. “Perhaps our overdue 12th Annual Wireless Competition Report will more thoroughly analyze this issue.”
Adelstein has similar concerns, he said. “This determination results in a 25 percent increase in the spectrum aggregation screen to 95 percent -- a notable change which raises concerns regarding increased likelihood of competitive harm in certain overlapping markets,” he said. “Significantly, we do not know what the complete impact of the 700 MHz auction will be, how that spectrum will be distributed and whether any single party, including the acquiring party in this proceeding, might get a disproportionate share of the spectrum.”
The revised cap sets a dangerous precedent, Copps said. “In the Commission’s rush to increase the screen’s denominator to 280 megahertz by including 80 megahertz of commercial 700 MHz spectrum, we utterly fail to address the reality that the majority of this spectrum is quite possibly years away from being a part of any real numerator,” he said. “Competition and, more importantly, consumers are put at risk by this type of sloppy math.”
The approval means the merger is now complete, AT&T said in a release. “AT&T will move quickly to rebrand Dobson as AT&T and to make AT&T’s innovative products and services available to Dobson customers,” the company said. “By December 9, virtually the full portfolio of AT&T products and services will be available at more than 200 Dobson retail locations. By that same date, temporary signage will be installed in all Dobson locations. AT&T expects to complete the rebranding process, with permanent signage in all retail locations, by the end of second quarter 2008.”
AT&T agreed to an interim cap on eligible telecom carrier (ETC) support, set at 12 times the level of support for which AT&T and Dobson were collectively eligible as competitive ETCs for the month of June 2007, it said. “This commitment by AT&T serves the public interest by minimizing pressure on the federal universal service fund caused by rapidly increasing demand for high- cost universal service support,” AT&T said.