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AT&T Defends T-Mobile Merger To Senate Judiciary Subcommittee

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WASHINGTON -- Top executives from AT&T and T-Mobile USA faced off against top officials from Sprint Nextel and Cellular South on Capitol Hill Wednesday as lawmakers considered whether AT&T's proposed $39 billion acquisition of T-Mobile would produce better mobile service for consumers or crush competition in the wireless industry.

Testifying at a Senate Judiciary subcommittee hearing on the transaction, AT&T President and Chief Executive Randall Stephenson said that the purchase would lead to fewer dropped and blocked calls and faster mobile Internet connections for subscribers. The deal also would position AT&T to cover more than 97 percent of the U.S. population with its new high-speed, fourth-generation wireless service, he said.

"This transaction is all about consumers," Stephenson told the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights. "It's about keeping up with consumer demand. It's about having the capacity to drive innovation and competitive prices for consumers."

But Sprint Nextel Chief Executive Daniel Hesse warned that if federal regulators approve the deal, the wireless industry would regress to "a 1980s-style duopoly" dominated by AT&T and Verizon – with smaller carriers like Sprint struggling to compete. "We believe that the acquisition of T-Mobile USA by AT&T is a 'bridge too far' in consolidating too much market power in the hands of only two, similar companies," Hesse said.

That point was echoed by Victor "Hu" Meena, president and CEO of Mississippi-based Cellular South, who said the transaction would "allow the wireless industry to continue down a path toward a duopoly made up of Ma Bell's two behemoth descendants."

AT&T, the nation's second-largest wireless carrier, is seeking federal approval to acquire T-Mobile USA, the fourth-largest, from Germany's Deutsche Telekom AG. The cash-and-stock deal would catapult AT&T past Verizon Wireless to become the biggest cellphone company in the country, and leave Sprint as a distant number three. Although it will ultimately be up to the Justice Department and the Federal Communications Commission to approve or block the transaction, Congress will likely influence the outcome of the government review.

From the start, AT&T has argued that the deal would produce benefits that help meet two key goals of the FCC and the Obama administration: ensuring that all Americans, particularly those in rural areas, have access to affordable high-speed Internet connections and freeing up more wireless spectrum to meet ballooning demand for mobile broadband services.

Stephenson told lawmakers Wednesday that by allowing AT&T and T-Mobile to combine their limited wireless spectrum holdings, the transaction would enable both companies to make more efficient use of their existing airwaves at a time when both are running out of capacity needed to handle mobile apps, online video and other bandwidth-hungry wireless services.

He noted that the volume of data traffic on AT&T's network has shot up 8,000 percent over the past four years – driven in large part by the wild popularity of the Apple iPhone, which until recently was available in the U.S. exclusively through AT&T. That has degraded AT&T's service quality, particularly in dense metropolitan areas.

T-Mobile, too, expects to exhaust its available spectrum in a number of key markets over the coming years, T-Mobile USA President and Chief Executive Philipp Humm testified Wednesday. He added that the company also does not have enough wireless spectrum to upgrade its network to faster technology.

But Sprint's Hesse rejected AT&T's claims that it is running out of spectrum as "a myth." He said the company holds more licensed spectrum than any other wireless carrier in the U.S., but is simply not using those airwaves efficiently and is instead "warehousing" them for future services.

"If AT&T invested only a fraction of the $39 billion T-Mobile purchase price into its own network, AT&T could alleviate its alleged capacity concerns, upgrade its network and deploy advanced wireless technologies, without harming wireless competition" Hesse said.

He added that AT&T already has plenty of spectrum to offer faster mobile broadband services in rural areas since data traffic is much heavier – and networks are being much more heavily taxed – in urban areas.

Another witness at Wednesday's hearing, Gigi Sohn, president of the public interest group Public Knowledge, also rejected AT&T's argument that consumers will still have a choice of multiple wireless carriers in most local markets even if it is allowed to buy T-Mobile. AT&T has pointed to smaller carriers like Leap Wireless, Metro PCS and U.S. Cellular to make its case.

But the wireless industry, Sohn said, is clearly a national market and the proposed transaction would leave only three big nationwide providers. What's more, one of those providers, Sprint, could become the next acquisition target, many believe.

Hesse and Meena stressed that smaller carriers would have a much harder time competing in a market dominated by only AT&T and Verizon. Smaller regional carriers are particularly concerned that they won't be able to strike reasonable roaming agreements that allow them to send wireless traffic over the networks of the big national companies in places where they don't have their own systems.

Smaller carriers also fear that they will be unable reach affordable "special access" agreements to use the vital back-haul lines that connect wireless towers to broader telecommunications networks and the Internet. Much of that critical network infrastructure is owned by AT&T and Verizon, which also dominate the landline telephone market.

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