FCC Report Rebukes Exaggerated Claims on AT&T, T-Mobile Merger

the FCC report

AT&T and Deutche Telekom, T-Mobile’s parent company, had hoped to keep the contents of the damning report under wraps by withdrawing its application from the FCC after Chairman Julius Genachowski made his opposition to the merger known last week.

The FCC allowed the companies to withdraw their applications, but FCC officials said they decided to release the 157-page, redacted report so the public could read its findings.

Here’s a summary of the FCC report concerning AT&T's "flawed" claims.

The merger would increase competition: False

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AT&T dismissed the idea that T-Mobile is a direct competitor, and claimed that smaller, regional carriers, like LEAP wireless and Metro PCS, would be able add subscribers and grow in T-Mobile’s absence.

But the FCC’s analysis – of mobile subscribers and of television advertising – showed that T-Mobile is in fact a direct competitor of AT&T, and a viable choice for consumers as national mobile carrier. Eliminating T-Mobile, and its competitive pricing, from the top four carriers, would be a boon for AT&T.

And the FCC wasn’t buying AT&T’s claim that these regional carriers could grow to take T-Mobile’s vital place in the marketplace.

The merger will create jobs: False

AT&T claimed that the merger would create jobs – including the addition of 5,000 call center jobs and “many thousands of indirect jobs” from the expanded network infrastructure. It has promised not to eliminate jobs at either carrier post-merger.

But AT&T’s own internal documents contradict its public-facing statements. AT&T is planning layoffs at both carriers, to eliminate redundancies after the companies consolidate, as is typical with most mergers. The FCC found no historical precedent of a merger creating jobs. AT&T also plans to eliminate all T-Mobile customer service jobs.

The merger will lead to lower prices: False

AT&T claimed that its acquisition of T-Mobile would lead to lower prices, because the combined network resulting from the merger would meet the increased capacity needs of data-intensive smartphones.

But the FCC’s analysis found the opposite to be true. Getting rid of T-Mobile -- a low-cost alternative for consumers -- would actually provide incentive for the larger carriers to raise, not lower prices for customers. AT&T did vow to honor existing T-Mobile contracts, but when T-Mobile customers’ contracts run out, or should they want to upgrade to new technology, they would be forced to face a major price hike.

The merger will lead to increased infrastructure investments: False

AT&T claimed that it needs T-Mobile in order to meet 97 percent of the nation’s 4G LTE needs.

Not so, says the FCC. Verizon is going ahead with plans to cover 95 percent of Americans by 2013, and the agency concluded that AT&T could (and most likely would) use the money it would have spent on the T-Mobile acquisition to build out network infrastructure, rather let its competitor leave it in the dust on 4G coverage.

Can the Deal Survive?

Needless to say, AT&T was incensed by the public release, arguing that the FCC’s report has no legal standing.

“This report is not an order of the FCC and has never been voted on. It is simply a staff draft that raises questions of fact that were to be addressed in an administrative hearing, a hearing which will not now take place. It has no force or effect under law, which raises questions as to why the FCC would choose to release it,” Jim Cicconi, AT&T senior VP of external and legislative affairs said in a statement. But, despite AT&T’s $40 million PR campaign to evangelize the merger, the damage has been done.

AT&T has been scrambling to come up with a Plan B that could save the seemingly doomed merger. That could involve selling off 40 or even 50 percent of T-Mobile’s customers and a percentage of spectrum to competitors, possibly LEAP wireless.

AT&T will first have to convince the Department of Justice, which filed a civil antitrust suit in August. The next court hearing is set for Dec. 9th. If the cellular giant can’t come up with settlement to satisfy the DOJ, the case goes to trial next February.