AT&T’s Merger Trial Balloon Quickly Deflating
AT&T’s Merger Trial Balloon Quickly Deflating
AT&T’s Merger Trial Balloon Quickly Deflating

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    There was a notable hissing sound emanating from Capitol Hill at the end of last week.  It was the air being let out of AT&T’s trial balloon, “The Inevitable.”  Thanks to some aggressive questioning from the Senate Antitrust Subcommittee, particularly Chairman Herb Kohl (D-WI) and Sens. Amy Klobuchar  and Al Franken ( both D-MN), it quickly became clear that there are lots of problems to the $39 billion takeover of T-Mobile that AT&T either hadn’t counted on, didn’t want to deal with or thought would simply be overlooked.

    AT&T has said repeatedly it expects the deal to be approved, and hasn’t yet mentioned any conditions. Granted, it is early in the process, but telling everyone what is expected is part of creating that air of inevitability to intimidating to legislators and agency staff that will have to make the call.  Adding to the environment, financial and industry analysts have said since the deal was announced on March 20 that it would be approved, albeit with some conditions.  That meme, based on the performance of the Antitrust Division in big, high-profile media/telecom cases, has infiltrated much of the thinking and writing about the deal.

    As the hearing demonstrated, and as some reporters are starting to pick up, AT&T’s deal is not a foregone conclusion, and in fact the company still has a lot of explaining to do in order to justify wiping out the fourth-largest national wireless carrier.

    It took several minutes of questioning of AT&T Chairman Randall Stephenson for Kohl to get the simple admission that yes, T-Mobile is a competitor for AT&T.  “You are competitors, right?” Kohl asked.  Stephenson said T-Mobile is “part of the eco-system” of the wireless industry.  Kohl, disbelieving the reply, said it was “incontrovertible” that the companies were competitors.  Is T-Mobile a competitor for AT&T?  T-Mobile USA President Phillipp Humm did a similar dance, all but ignoring the TV commercial Public Knowledge President Gigi Sohn played for the subcommittee at the start of the hearing, which depicted AT&T’s network as the weight around its customers, slowing them down relative to T-Mobile’s 4G network.

    It was hard not to have some sympathy for Humm, who had to argue his company was abandoning the U.S. and was so constrained it couldn’t possibly compete any more.  Admitting abject failure for so vital and perky a company as T-Mobile in such a public forum had to be excruciating.  But that’s what the home office demanded, so Humm did it.

    The hearing was notable not only for the tough questions tossed at Stephenson and Humm, but for the lack of tough questions posed by those who would normally be forthright in defense of the merger.  While it’s true, as some commentators said, that no senator came right out and said the merger should be blocked, the questioning did reveal a lot.  The onslaught of hostile questions on pricing, consumer rights accompanied by the observations of the creation of a wireless duopoly surely showed that the senators, primarily on the Democratic side, have enough serious doubts about the deal that approval by the Justice Dept. should not be a foregone conclusion.

    Even more interesting was the commentary from the Republicans, including from Sen. John Cornyn (R-TX), AT&T’s home-state senator on the committee. (AT&T has its headquarters in Dallas.)  Cornyn issued no clarion calls for the merger to be approved forthwith.  He gave no denunciations of government regulators trying to quash the free market and the fate of his great constituent company.  He instead settled for some platitudes on broadband access, criticizing the broadband part of the stimulus program and feeding Stephenson some softball questions on innovation and the role of the private sector.

    Stephenson’s claim that there are 600 devices in the wireless market (you should pardon the expression) rang hollow, considering it kept a five-year exclusive deal on the iPhone, which is worth much more than, at least 595 of those other devices.

    AT&T is pumping millions of dollars into getting this acquisition through, and clearly didn’t get its money’s worth from the Senate panel.  If the Senators send a letter to the Justice Department which in any way would give political cover to the Antitrust Division blocking the merger, then the deal could be in real trouble.  The meme is starting to change, as reporters are starting to realize that AT&T’s conquest may be a reach too far.

    AT&T may have better luck in the House, where the rhetoric can be less constrained than in the Senate.  The House Judiciary Committee’s Internet Subcommittee has a hearing tentatively scheduled for May 26.  The full Committee Chairman Lamar Smith is from Texas, although he is from the San Antonio area that AT&T scorned, moving its hq from there to relocate up north.  There is  no shortage of highly charged members on the subcommittee, who could more than make up for the tepid response AT&T got in the Senate.

    The only conditions which could stifle the House hearing are the obvious facts of this case, which as Sohn, Sprint CEO Dan Hesse and Cellular South CEO Victor “Hu” Meena testified, are anticompetitive and anti-consumer on any number of levels.