WASHINGTON-The Federal Communications Commission’s thorough review of Cingular Wireless L.L.C.’s $41 billion play for AT&T Wireless Services Inc. represents a new level of merger analysis likely to be applied to future blockbuster deals in the mobile-phone industry.
The proposed marriage of Cingular Wireless and AT&T Wireless, which would create the largest wireless carrier in the nation, is the first transaction of its size and scope to be confronted by the FCC since the agency eliminated the spectrum cap in 2003. The Department of Justice is also reviewing the proposed merger.
And with last week’s elimination of the rural cellular cross-ownership rule, there are no more bright-line tests for judging wireless mergers at the federal agency.
The disappearance of the spectrum cap and cross-ownership rules, combined with technological advances and business trends making product and service substitution disruptive forces in the marketplace, the growing importance of mobile phones in society and other factors are reshaping the manner in which federal regulators scrutinize major wireless mergers.
Adam Thierer, director of telecom studies at the CATO Institute, said the FCC’s review of the Cingular-AT&T Wireless deal may well signal a shift away from viewing telecom markets narrowly.
“What we’re talking about is the question of how broad we’re going to define markets in the future. … The way to look at this is to see all these things as substitutes,” said Thierer.
The FCC readily admits to a new framework for wireless merger reviews, with Cingular-AT&T Wireless being a test bed for the new regulatory regime.
The commission’s recent request for additional information from Cingular Wireless and AT&T Wireless provides a glimpse into how it is approaching a proposed merger that is widely expected to be approved later this year. If given the green light, Cingular Wireless, a GSM carrier, would replace Verizon Wireless, a CDMA operator, as the No. 1 mobile-phone operator in the United States.
The possibility exists, however, that federal officials could condition or modify merger approval with respect to particular markets where Cingular and AT&T Wireless now compete against each other.
Questions posed by Wireless Telecommunications Bureau Chief John Muleta to counsel of both companies in a June 30 letter are numerous, extremely detailed (many seemingly involving confidential company information) and run the gamut-from migration plans to third-generation technology to pricing and market strategies to churn rates to local number portability to expected network outages to corporate goals.
The FCC asked Cingular and AT&T Wireless to supply data, analyses, spreadsheets, maps and other supporting documentation with its answers.
Requests for additional information on proposed mergers are not unusual.
The FCC devoted an entire section of questions to wireless-wireline competition issues. Cingular is 60-percent owned by SBC Communications Inc. and 40-percent by Bell South Corp. Bell telephone giants have pointed to local competition from wireless carriers in seeking approval to provide long-distance service in markets outside their regions. But that tack could backfire if the FCC were to combine wireline and wireless market shares in given markets to determine whether antitrust issues exist.
A strong, overarching theme in the FCC questionnaire is the consumer, including those in rural areas. Muleta asked what programs Cingular and AT&T Wireless have for migrating customers from TDMA to GSM systems, and questioned why the two companies have not chosen to accelerate that migration. The FCC also wants more information on the 3G plans of each wireless carrier and the projected costs of integrating Cingular and AT&T Wireless systems.
Responses to the questions are due Thursday.
“We received the FCC’s request for information-much of which we have already supplied to the DoJ. We’re working to supply the information to the FCC promptly so that the acquisition of AT&T Wireless can be completed as quickly as possible, ” said cingular spokesman Clay Owen.
A couple of years ago, with the sunset of the spectrum cap in sight, the FCC considered adopting wireless merger guidelines to enable regulators to examine mergers on a case-by-case basis. The idea drew criticism from the wireless industry and from a couple of FCC members, including Chairman Michael Powell.
As such, the FCC does not have formal wireless merger guidelines. But extensive work by an FCC task force that went into developing such guidelines has provided a foundation for regulators to examine the pending Cingular-AT&T Wireless deal. They are the guideposts for other wireless mergers to come, as industry enters a critical consolidation phase.
To say the agency has unofficial merger guidelines could be misleading, an FCC spokesperson said. At a minimum, it appears the FCC has developed a rough blueprint of sorts that effectively serves as an unofficial guide.
The mobile-phone industry has argued the FCC should look to Justice Department merger guidelines in considering wireless acquisitions. Some industry observers strongly believe the FCC should defer all antitrust review to the Justice Department and limit the telecom agency to the bureaucratic task of transferring wireless licenses from one entity to another. Others disagree, arguing the FCC has a duty to ascertain a merger’s potential impact on competitiveness and whether a given deal is in the public interest, itself an elusive and foggy notion.
