FCC Report on AT&T + T-Mo Deal: Sorry, We’re Not Buying It

11/29/11Follow @curtwoodward

The Federal Communications Commission gave AT&T and T-Mobile USA a little kick on the way out the door today, releasing its staff report on the companies’ proposed $39 billion merger. AT&T and T-Mobile parent Deutsche Telekom pulled their merger application last week (on Thanksgiving!), choosing instead to focus their regulatory fight where it really matters—the antitrust lawsuit from the Justice Department.

The companies didn’t want the FCC report to be made public, but they lost that battle, so we now have some extremely detailed reading to dive into. You can check it out for yourself over at the FCC site. The document is chock full of technical detail and legal analysis, but it really boils down to a broad rejection of the claims made by the two companies to support their deal.

The upshot is on pages six and seven, where the staff report tears apart the justifications for the buyout. There are three basic areas of concern—first and most broadly, the report says the effects on competition would be too severe, with a higher likelihood of coordination among the remaining players and questions about the markets for handsets along with roaming, wholesale, and other wireless services.

The report also slaps aside the economic and engineering models that AT&T and Deutsche Telekom used to claim that the buyout would drive down wireless industry prices and network costs. And finally, the report says any savings from the combined operations of the two carriers could result in poorer customer service rather than lower prices, and wouldn’t drive any increase in jobs.

Of course, lots of the really interesting information is redacted—but I did find one fun spot where someone messed up and forgot to white out some things that are marked confidential. It’s in the footnotes on page 12, where the commission is discussing T-Mobile’s strength as an independent competitor.

“Indeed an email exchange argues that ‘T-Mobile’s 4G network is much faster than AT&T’s network,’” the unredacted material says, citing December 2010 email between Paul Weisbecker of AT&T and Kelsey Joyce of T-Mobile. Here’s a screenshot of that passage, in case it gets pulled later:

As you can see, a second area that appears to be unintentionally published immediately follows that, saying that T-Mobile’s network expansion “puts T-Mobile ahead of its competitors in terms of network speeds.” That citation points to Network Business Quarterly, an industry report by the analysts at Technology Business Research, so I’m not sure why it would have been designated for redaction in the first place.

The report’s discussions of small, regional wireless carriers has some new weight amid the New York Times report that AT&T’s hope now is to carve off chunks of T-Mobile  to prop up a new No. 4.

The discussion on pages 33-38 of the FCC report lays out just how tiny these small wireless providers are in relation to the big guns—if measured by revenue, the three largest of those also-rans only makes up about 6.5 percent of the national wireless market combined, compared to T-Mobile’s 11 percent.

“To provide service comparable to a nationwide provider, and thus be able to compete effectively and prevent competitive harm, a regional provider would most importantly need to obtain a nationwide spectrum footprint and the resources to build it out,” the report says. “In only one of the top ten markets to Leap, MetroPCS and U.S. Cellular, the largest regional firms, have half as much spectrum combined as T-Mobile’s spectrum holdings.”

That’s a pretty big gap to make up with pieces from a dismembered T-Mobile. If AT&T can get a deal in place with the feds to make a new fourth-place carrier, this report would provide plenty of ammo for evaluating whether the deal passes the smell test.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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