(Photo: REUTERS / Jason Reed)
AT&T's chief executive Randall Stephenson (L) and Deutsche Telekom Rene Obermann CEO at a U.S. House Judiciary Committee hearing on the proposed merger between AT&T and T-Mobile on Capitol Hill in Washington. Getting the deal approved is looking like an uphill battle for both companies.
The merger between AT&T and T-Mobile USA has triggered a debate between interest groups, the government, and major wireless companies.
However, largely absent from the debate is the effect the merger would have on smaller, lower-cost wireless carriers. This could be because the carriers, along with industry experts, are split on how the merger will affect these non-dominant but critical players in the wireless market.
U.S. Cellular isn't pleased with the merger. In a filing with the Federal Communications Commission last August, the Chicago-based company pointed out numerous problems smaller wireless carriers have in terms of competing with big counterparts such as Verizon and AT&T.
One issue small carriers have is that large carriers such as AT&T and Verizon have handset exclusivity. Larger companies have the negotiating power to say they won't carry a handset unless it is the exclusive carrier.
Small carriers partner with the larger wireless carriers to provide roaming service outside of the network. T-Mobile has often provided affordable roaming rates for smaller carriers, U.S. Cellular noted in the filing, and the absence of T-Mobile could mean less competitive pricing for roaming partnerships. U.S. Cellular didn't respond to IBTimes's request for comment.
U.S. Cellular isn't the only small carrier concerned about the merger's effects. San-Diego based Leap Wireless announced opposition to the merger based on concerns over what a larger AT&T could do to innovation and competition in the wireless industry.
"We oppose the proposed acquisition. A competitive marketplace is critical to wireless innovation and small and mid-sized carriers such as Cricket are driving that innovation," Doug Hutcheson, President and CEO of Leap said in a statement after the company announced its opposition. Cricket is a subsidiary of Leap.
However, some carriers aren't fighting the proposed merger tooth and nail. At a Merrill Lynch-sponsored conference in September, MetroPCS Chief Financial Officer Braxton Carter said the merger would give AT&T a market share "at a concerning level," and he addressed some of the concerns U.S. Cellular had. However, Carter told conference-goers AT&T "has been very open to considering some of these issues" and therefore the Richardson, Texas-based company wasn't automatically opposed to the deal.
AT&T may be able to gain approval for the merger if the company sells some of its assets to smaller carriers, Jeff Kagan, an independent telecommunications analyst, told IBTimes. MetroPCS, which said it was unable to provide executives for an interview, has frequently been mentioned as a company who may be willing to purchase assets from AT&T.
However, Kagan, who opposes the merger, said the sale of assets wouldn't deal with the main issues of the merger. He said competition would still be consolidated, and the smaller carriers may not have the resources to update their wireless networks to deal with growing data usage.
"As more consumers use smartphones, wireless networks are going to clog," Kagan said. "Selling off assets isn't going to solve that problem."
AT&T announced in March that it planned to acquire T-Mobile USA, a subsidiary of Deutsch Telekom, for $39 billion in a cash-and-stock transaction. The companies said the merger would give more customers access to a 4G LTE network and would give AT&T more spectrum to take on increased data traffic.
But opposition arose shortly after the announcement. Sprint Nextel, the third largest wireless carrier in the United States behind Verizon and AT&T, has been the most vocal opponent of the merger. Sprint believes the deal would lead to an essential duopoly, as AT&T and Verizon would control over 80 percent of the market if the merger were approved.
Sprint also leveraged the public's concern about jobs to oppose the merger. Sprint commissioned a study this summer conducted by David Neumark, the director of the Center for Economics & Public Policy at UC Irvine. The study said the proposal could eliminate up to 60,000 jobs.
AT&T has repeatedly denied claims that the merger would bleed jobs. The Communication Workers of America, which represents AT&T's workers, agreed. The union said the deal could create up to 100,000 jobs as AT&T looks to strengthen its wireless network.
In August, the U.S. Department of Justice filed a lawsuit to block the merger, using similar arguments to Sprint. That trial will begin in February of next year. Sprint and C Spire, a small regional wireless carrier providng service in parts of the Southern U.S., have also filed separate lawsuits against AT&T.
On Tuesday afternoon, the Wall Street Journal reported that FCC Chairman Julius Genachowski plans to call for an administrative hearing regarding the matter. These administrative hearings are rare and the move may mean the commission is uncertain the merger would be in the best interest of the public.
AT&T's biggest competitor, Verizon, has remained quiet on the issue for months. But Chief Financial Officer Francis Shammo told analysts last week at a Morgan Stanley-sponsored conference that the company didn't have any objections to the AT&T and T-Mobile deal.
"We said there needs to be consolidation and as long as there is consolidation without regulation, we don't have an objection to it."
Frost & Sullivan Telecommunications analyst Todd Day believes the merger, if approved, would make little difference in the business of small carriers, given that small carriers target a different type of customer than AT&T or Verizon.
In fact, the merger may slightly help smaller carriers, he told IBTimes. T-Mobile has a solid base of customers who use enterprise technology such as smartphones. Those customers may stay with AT&T after the merger is complete.
"However, many T-Mobile customers are price-conscious consumers turned off by AT&T and Verizon's higher fees," Day said. "Those people could either go to Sprint or go to smaller wireless carriers."
This article is copyrighted by International Business Times, the business news leader