Kohl Demands Regulators Block AT&T, T-Mobile

No merger condition “could significantly remedy” the harm that would result, Kohl said. “An acquisition which would decrease the number of national competitors from four to three in an already highly concentrated market, and one that eliminates the low price competitor from this market, is in my view highly dangerous to competition and consumers,” Kohl said. “It will likely tend to substantially lessen competition, lead to consumers paying high prices with fewer choices, as well as lessen the innovation that has been the keystone of this industry in the last decade.” Kohl has “considerable doubt” that Sprint Nextel would survive if the deal was allowed, he said. “A duopoly in this crucial marketplace would be a wholly unacceptable outcome."

All of AT&T and T-Mobile’s defenses “are without merit in my view,” Kohl said. Many of the efficiencies cited by the companies “are highly speculative at best,” the senator said. And “the record simply does not support the notion” that AT&T needs the merger to serve rural areas with wireless broadband, he said. The deal should be evaluated on a national basis, because the carriers’ local competitors “are not competitively significant players in the national market,” he said. Also, the competitors rely on AT&T and Verizon for roaming and special access, and they don’t have the same access to the Apple iPhone and other highly demanded devices, Kohl said. All the major carriers have national pricing plans, he added.

AT&T and T-Mobile said they respect Kohl but disagree. Kohl’s view “is inconsistent with antitrust law, is shared by few others, and ignores the many positive benefits and numerous supporters of the transaction,” an AT&T spokesman said. “This is a decision that will be made by the Department of Justice and the FCC under applicable law and after a full and fair examination of the facts. We continue to believe those reviews will result in approval of this transaction.” The merger “will bring significant benefits to American consumers,” said T-Mobile Senior Vice President Tom Sugrue. “We are confident that the review process will demonstrate that the merger is fully consistent with the antitrust laws and significantly advances the public interest."

Congress has influence but does not have final say over mergers. Kohl in 2007 asked regulators to block the XM-Sirius merger, but the deal was approved anyway by the then-Republican FCC and DOJ. But the letter is still significant, analysts said. “It suggests political opposition to the deal could be stronger than appreciated,” said Potomac Research analyst Paul Glenchur. “Also, Sen. Kohl’s view could be a factor when the full Judiciary Committee considers a future nominee to replace Christine Varney as head of the Antitrust Division.” While Congress generally doesn’t have large impact on merger decisions, “it’s a clearly a setback for the companies to have someone in Kohl’s position directly call for the deal to be blocked,” said MF Global analyst Paul Gallant. Kohl’s stature “counts for something” and could provide some political cover for the FCC and DOJ, but the agencies have final say and the deal could still “eke through with conditions,” Medley Global Advisors analyst Jeff Silva said.

Kohl’s letter prompted his Republican counterpart on the subcommittee to defend the deal. “The mobile phone market is a critical component of our nation’s economy and the proposed merger between AT&T and T-Mobile deserves careful review,” Ranking Member Mike Lee, R-Utah., said. “The merger has the potential to provide significant network efficiencies that may help alleviate capacity constraints, enable enhanced service quality, and facilitate expansion of a 4G LTE nationwide network, which would in turn create opportunities for handset innovation and continued development of data-rich applications.” Lee is confident that DOJ and the FCC “will take steps to ensure that the market remains competitive and that regional carriers continue to enjoy access to popular handsets and roaming arrangements on the nationwide networks."

Meanwhile, Markey, Conyers and Eshoo urged regulators to “comprehensively assess the consequences” of the proposed deal and “scrutinize the transaction’s supposed coverage and capacity benefits, with an eye towards determining whether the claimed benefits will actually materialize and could be achieved only as a result of this transaction.” An AT&T acquisition of T-Mobile “would be a troubling backward step in federal public policy,” the House Democrats said. The deal, if approved, would represent “a retrenchment from nearly two decades of promoting competition and open markets to acceptance of a duopoly in the wireless marketplace,” the House Democrats said. “Such industry consolidation could reduce competition and increase consumer costs at a time our country can least afford it. Further, it could also discourage investment and restrict innovation in both the wireless and wireline infrastructure market as well as in the associated applications and device markets."

"Any merger that results in two companies controlling nearly 80 percent of any market must be closely scrutinized,” Eshoo said by email. “How will consumers win, how will their costs be reduced, and how will competition fare?"

Foes of the AT&T/T-Mobile deal cheered on Kohl. “This is a powerful rebuttal to AT&T’s arguments, and we hope regulators will pay close attention and ultimately reject this deal,” said Consumers Union policy counsel Parul Desai. Kohl “presents an extremely compelling review of the significant, adverse risks associated with the pending AT&T takeover of T-Mobile,” said Sprint Nextel senior vice president Vonya McCann. CompTel, the Rural Cellular Association, Dish, Free Press and Public Knowledge were among others who applauded the letter.

But the Internet Innovation Alliance defended AT&T and T-Mobile. The proposed deal “will result in expanded access for consumers to next-generation, high-speed mobile broadband service,” an IIA spokesman said. The deal will bring mobile broadband to rural areas, “create more competition and require other carriers to make business decisions regionally on where they want to provide high-speed broadband service into the future.” T-Mobile won’t survive without agreeing to an acquisition, and AT&T is a better buyer for union workers than Sprint Nextel, the Communications Workers of America said.