AT&T’s Purchase of T-Mobile Questioned on Prices by FCC Official

AT&T Inc. (T)’s proposed $39 billion acquisition of Deutsche Telekom AG (DTE)’s T-Mobile USA raises questions about whether the deal would lead to consumer price increases, the U.S. Federal Communications Commission’s top economist says.

Chief FCC economist Jonathan Baker also said in a March 31 speech at a Washington antitrust lawyers’ conference that the agency should determine whether the deal would leave wireless customers without viable alternatives. These concerns should be weighed against the possibility of technological breakthroughs and whether cost savings would be passed on to consumers, Baker said. His remarks received little notice at the time beyond antitrust circles.

“It’s just a signal that the FCC is going to be examining these issues very carefully,” Robert Lande, a University of Baltimore law professor who attended Baker’s speech and confirmed its content, said in an interview. He said Baker’s concerns are the basis of “a tough standard for approving a merger.”

The proposed acquisition, announced March 20, would combine the second- and fourth-largest U.S. wireless operators to create the nation’s largest. If approved by the FCC and the Justice Department, the deal would leave three major wireless providers in the U.S., including Sprint Nextel Corp. (S) and Verizon Wireless, which is co-owned by Verizon Communications Inc. (VZ) and Vodafone Group Plc. (VOD)

During the speech, Baker said his comments reflected his own views and not that of any of the five FCC members. He said he was laying out what he thought the FCC should examine and wasn’t taking a position on whether the transaction should be approved.

‘Very Steep Climb’

Michael Copps, one of three Democrats on the FCC, said in a C-Span interview broadcast earlier this month that AT&T faces a “very steep climb” to win his vote.

Encouraging competition should be the main focus of the FCC’s review, said Mignon Clyburn, another Democratic commission member, in an April 8 speech. It takes the votes of three FCC members to approve the acquisition.

Sprint Nextel, the third-largest wireless provider, said the government should block it, and consumer groups say the deal would reduce competition and increase prices and should be vetoed.

The purchase won’t wipe out the benefits of Bellevue, Washington-based T-Mobile’s service, said Michael Balmoris, an AT&T spokesman.

“Your current T-Mobile phones will continue to work fine once the transaction is complete, and you will be able to keep your existing price plan,” he said in an e-mailed statement.

City by City

In his speech, Baker said it may make sense to have the purchase’s effect on competition analyzed on both a nationwide and city-by-city basis.

Taking into account the whole U.S. market, a combination of Dallas-based AT&T and T-Mobile may raise the Herfindahl- Hirschman Index, an accepted measure of market concentration, to 3,216 from 2,848, according to a Bloomberg analysis. Any score above 2,500 can indicate a highly concentrated market, and an increase of more than 200 points is “likely to enhance market power,” according to federal guidelines.

These scores, while not conclusive, often are used by antitrust investigators as starting points in their probes, Lande said.

AT&T officials have urged a city-by-city examination of the deal.

Baker, in his speech, also said the absence of such innovative companies as T-Mobile in any market is a concern.

Price Fluctuation

One way T-Mobile has sought to distinguish itself is on price. In a January slide presentation to investors, Deutsche Telekom Chief Executive Officer Rene Obermann highlighted T- Mobile’s effort to offer the most inexpensive data services.

In one graphic, Obermann claimed T-Mobile could save a family of five more than $400 compared with AT&T, Verizon and Sprint.

An FCC review should look at whether other wireless companies have the technological or financial resources to counterbalance a combined AT&T and T-Mobile by improving their technology, revamping products and increasing production, Baker said.

Beyond antitrust concerns, the FCC in its review would examine whether a deal is in the public’s interest, he said. If necessary, the FCC would impose conditions before its approval, he said.

Sometimes fixes aren’t possible, and deals such as MCI WorldCom Inc.’s bid to buy Sprint as well as EchoStar Communications Corp.’s proposed purchase of Hughes Electronics Corp.’s DirecTV had to be abandoned, he said.

To contact the reporter on this story: Jeff Bliss in Washington at jbliss@bloomberg.net

To contact the editor responsible for this story: Mark Silva in Washington at msilva34@bloomberg.net

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