T-Mobile USA and AT&T's CEOs will defend the proposed merger of their networks before the U.S. Senate today.  (Source: AP Photo)

The deal would reduce the number of big nationwide carriers to three. With Sprint in danger of failing, customers could soon be left with only two options.  (Source: Politico)
Consolidation would only leave three large players on the market

AT&T, Inc (T) hopes to soon complete an acquisition of Deutsche Telekom AG's (DTE) T-Mobile USA.  But to get there, the companies have to navigate through a Congressional inquiry -- which occurs today -- regulatory hurdles set up by a number of government agencies, and strong opposition from smaller rivals.

I. Birth of a Duopoly

The move would unify T-Mobile's 32.3 million subscribers with AT&T's 97.5 million subscribers to form the nation's largest carrier, easily surpassing Verizon Communications, Inc.'s (VZ) 104 million subscribers.  Together, Verizon and AT&T would have 80 percent of contract cell phone customers in the U.S.

The move would leave the struggling Sprint Nextel Corp. (S) with 51 million customers as the only alternative to Verizon/AT&T.  Sprint Nextel is viewed as a potential acquisition target as well.

Before AT&T can complete its purchase, it must gain approval from the U.S Federal Trade Commission (FTC), U.S. Department of Justice (DOJ), and U.S. Federal Communications Commission (FCC).

II. Congressional Inquiry

The road to that approval begins today in a special Congressional hearing on the deal.  AT&T Chief Executive Randall Stephenson and T-Mobile USA CEO Philipp Humm will have to defend the acquisition before the U.S. Senate's antitrust subcommittee.  

The Senate does not have power to approve or reject mergers, but it wields control over the DOJ and FCC to execute its objectives.  According to a Reuters report, staffers point to loss of competition and jobs as two key concerns for federal officials.

AT&T and T-Mobile vigorously promoted the alleged merits of the deal, saying it will provide faster data service to customers on both networks, and better voice network coverage.  They also argue it will allow them to use their collective spectrum more efficiently at a time when spectrum is at a premium.

Both companies have opted to shirk the expense of deploying true 4G networks now, instead opting to rebrand 3.5G HSPA+ as "4G".  Current HSPA+ deployments fall far short of the promised spec, much like current true 4G deployments by Sprint and Verizon.  Thus the incomplete HSPA+ "4G" remains slower in most tests than Verizon/Sprint's incomplete true 4G.

III. Mounting Opposition

The merger has a number of high profile opponents, including Sprint Nextel, Cellular South, and public interest groups.  They say the rise of two super carriers would allow for tactics that would force smaller competitors out of the market.  Sprint spokesman John Taylor comments, "We continue to believe that this transaction would be bad for consumers, bad for the wireless industry and bad for the economy."

The DOJ will evaluate antitrust concerns and the FCC will evaluate public interest issues.  The FCC is reportedly already growing concerned about the merger after a record number of T-Mobile subscribers jumped ship in Q1 2011 and sent it over 4,800 complaints about the proposed deal.  FCC Commissioner Michael Copps says the deal "may be an even steeper climb" than the controversial Comcast Corp. (CMCSAacquisition of NBC Universal.  Mr. Copps voted against that approval, but was narrowly defeated when the deal was approved in January by a 4-1 vote.

In an odd display, T-Mobile continues to air attack ads against AT&T, criticizing its "slow" networks.  The ads depict spokeswoman Carly Foulkes sympathizing at the plight of her friend "iPhone", who is forever burdened by his partner "AT&T".  The ads perhaps display that even T-Mobile's leadership on some level believes that the deal won't be approved. 

In related news, Verizon and AT&T are battling the U.S. FCC to try to prevent new rules that could force them to open their towers to smaller players.  Similar rules, backed by U.S. law exist with landline phones and cable internet connections, but do not apply to cellular providers.

"This is about the Internet.  Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If they can't deal with the Internet, they should shut it off." -- RIM co-CEO Michael Lazaridis

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