Tear up your D.C. tech and telecom scorecards for 2011, thanks to AT&T’s decision to purchase T-Mobile for $39 billion.
The transaction will have to be reviewed by both the Federal Communications Commission and the Department of Justice—with Congress, via its oversight authority, looking over everyone’s shoulder as well.
It will be the tech and telecom issue in D.C. this year.
The DOJ will apply standard antitrust law. It is no secret that the wireless marketplace is becoming more concentrated—with AT&T and Verizon zooming away from their competitors in recent years. So it is no surprise that leading antitrust experts (like Herbert Hovenkamp) are already saying this will be a squeaker.
And then there is the FCC. The agency was created in order to manage the nation’s spectrum resources. Its legal and practical authority over spectrum licenses is greater than with any other issue it addresses.
During the Clinton years, the agency imposed limits on how much spectrum any one company could hold. But those were eliminated by the Bush administration—and the issue has remained a partisan sore spot ever since.
(Full disclosure: Until last summer, I was chief counsel and senior policy adviser to the current chairman of the FCC, Julius Genachowski, and before that, I was an adviser to Commissioner Michael J. Copps.)
Democrats have typically argued that no one company should control more than one-third of existing mobile spectrum, to ensure the existence of at least three competitors.
Republicans maintain that spectrum ought to be allocated through open markets—if a company has succeeded in attracting customers and cash flow, it deserves access to the spectrum necessary to serve them.
The stakes couldn’t be higher, because (1) wireless is the growth engine of all of tech and telecom right now and (2) wireless carriers are rolling out next-generation 4G technologies, which will offer speeds several times faster than what are available today.
Here are some key questions to keep in mind over the next few months:
1. How will Democrats play the issue?
The conventional wisdom is that they will lay down on the tracks.
Already, public-interest groups are calling the merger “unthinkable.” But AT&T managed to (more or less) reassemble itself in the two-plus decades since its breakup—over the objections of public-interest groups every step of the way.
Just as important, in the run-up to the 2012 elections, the White House (which has substantial authority over the DOJ) and the FCC (which is technically independent, but often takes its cues from the White House) will have no interest in being labeled anti-business or anti-jobs.
Note that T-Mobile is German-owned—which was another sore spot, on both sides of the aisle, when it bought these assets in the first place. Expect AT&T to make major public commitments to increasing the number of American jobs through this transaction.
2. Will Verizon buy Sprint (the other major wireless carrier)?
There are plenty of reasons why not—incompatible technologies, Verizon’s expensive focus on building fiber to the home throughout its geographic footprint.
But letting this move go unanswered is also a pretty scary place to be, especially for a company that (until today) had been the comfortable numero uno in the wireless market. Expect some serious soul-searching in the Basking Ridge C-suite over the next few weeks.
Historical note: When Southwestern Bell announced its decision to buy AT&T (then a long-distance company) in January 2005, Verizon announced its decision to buy MCI (the other major long-distance company) just two weeks later.
3. Will Silicon Valley take a side?
Five years ago, it looked like the high-tech and consumer electronics industry was (unhappily) much less powerful than the wireless carriers. Smaller tech companies, and even heavyweights like Microsoft and Google, complained that the carriers were stifling innovation in an effort to control the market for downloadable music, games, mapping programs, and so forth.
But with the rise of the iPhone, Android, and the ubiquitous app, Apple, Google, and (to a lesser extent) Microsoft are now major business partners of the carriers. And the first rule of regulatory gamesmanship in Washington is that you don’t—at least without a very good reason—fight with your business partners in the regulatory arena.
Moreover, the largest high-tech companies may now have far less to fear from the carriers than they once did. Though this transaction could shift that balance yet again.
4. What about the rest of the regulatory chessboard?
The second rule of regulatory gamesmanship is that any company with a major transaction before the government suddenly gets a lot more cooperative on every other issue it has before the government.
The two biggest issues before the FCC and Congress right now are (1) reform of the byzantine Universal Service Fund and (2) reclamation (for mobile broadband) of the spectrum currently allocated to television broadcasters.
AT&T is the 800-pound gorilla on both these issues (though are also some other large gorillas as well). So expect some complicated dealmaking on both fronts—and AT&T is the best there is in this arena.
Also, the FCC’s recent network neutrality decision created less restrictive rule for mobile Internet access service, as compared to wired service, in part due to assumptions about competition in wireless. Expect calls to revisit this decision, as well.
Finally, there are likely to be two commissioners nominated this year. (Copps’s term lasts only until Congress adjourns this year.) The timing of a regulatory decision is likely to cast a big shadow on their confirmation schedules.
How will it all play out?
It’s far too early to say—though it’s always a safer bet that the government will approve a proposed transaction than block it.