AT&T Swallows Competition – Haven’t We Seen this Movie Before?

BY CCIA Staff
April 4, 2011

This all seems eerily familiar.  AT&T uses JP Morgan’s money to buy-out up-start competitors.  The firm argues to antitrust authorities that its monopolist tendencies will provide the benefit of expanding connectedness to more Americans.  Thus, the argument went, elimination of competition was really for the public’s benefit.
Whether these events recall the creation of the AT&T telephony monopoly in 1913 with the Kingsbury Commitment, or AT&T’s current attempt to acquire T-Mobile in a deal that will devastate competition in wireless voice and broadband, the facts are largely the same.
We all know the history of the AT&T monopoly.  It resisted innovation in telephony at every turn – whether by requiring that its customers rent and use only its telephone equipment or rejecting and retarding innovation of numerous communications services, such as the fax machine, answering machine, and cellular telephone.  Consumers should worry that a consolidated wireless marketplace led by AT&T will return to many of these anti-consumer, anti-competitive tactics.
Already, customers face an uncompetitive mobile marketplace (in 2010, for the first time, the FCC concluded that the wireless sector was NOT competitive).  Currently, customers are largely forced to accept non-negotiable two-year contracts from mobile providers at the highest rates in the world.  In a further consolidated market, customers can expect higher prices for declining service.  Application, hand-set, and operating system developers can all expect to confront restrictions and red-tape from network operators — all of which will result in less innovative products in the marketplace, but ever-greater profits for behemoths like AT&T and Verizon.
In addition to concerns about the deleterious impact on consumers and competition in the wireless marketplace, it’s also necessary to refute AT&T’s misguided assertions that acquiring T-Mobile will fill its spectrum needs and allow it to quickly roll out its next-generation wireless network.
AT&T’s statements indicate that its proposed acquisition of T-Mobile is driven by its craving for additional spectrum bandwidth in order to build out its 4G network.  This strategy is well conceived. The FCC’s National Broadband plan addresses the looming spectrum shortage.  Unfortunately for AT&T, there are numerous logical and factual holes in its argument on its spectrum needs.
First, some contend that AT&T already has enough spectrum to achieve its stated post-merger goal of expanding wireless to 95 percent of the country.  For instance, Consumers Union says AT&T simply hasn’t yet made the investments to build out the spectrum it already has.  Allowing AT&T to procure additional spectrum when it already has enough to meet its stated goals will simultaneously allow AT&T to eliminate one of its most consumer-friendly competitors and stockpile additional spectrum, making it less likely for new competition to be able to enter the wireless marketplace.
If we accept AT&T’s assertion that it needs more spectrum now, even obtaining T-Mobile’s spectrum won’t eliminate the need for the company to acquire even more spectrum down the road to satisfy the needs of the growing segment of customers consuming mobile data from smartphones and tablets.  AT&T is hoping to consume one of its chief competitors as a short-term fix to what will remain a long-term problem for the entire wireless industry.
Finally, recently there has been great buzz around the need to free up unused and underused spectrum that is currently owned by broadcasters for use by mobile broadband providers.  Understandably, broadcasters don’t want to give up this valuable asset unless they can get top-dollar.  While momentum had been building behind the FCC running spectrum incentive auctions, wherein broadcasters would agree to put spectrum up for auction to wireless broadband providers in return for a cut of the auction revenue, this transaction throws a monkey-wrench into those plans.
It’s not just AT&T and Verizon that want or need additional spectrum, it’s also Sprint and smaller, regional wireless providers.  Additionally, companies that harbor hopes of jumping into the wireless marketplace are also potential buyers in any spectrum auction.
Putting spectrum on the market is vitally important to increasing competition in a consolidated wireless marketplace – no one disputes this.  However, AT&T’s purchase of T-Mobile reduces AT&T’s short-term need for spectrum and eliminates T-Mobile as a bidder in any spectrum auction.  Fewer deep-pocketed bidders for the broadcasters’ spectrum will likely delay any incentive auction until need is more acute amongst the richest buyers (AT&T and Verizon).
Of course, this is all-too-convenient for the duopoly; they can afford to wait it out and continue to consume their struggling rivals while potential market entrants are forced to remain on the sideline.
More next time on the merger delaying next generation wireless…

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