AT&T's Merger with T-Mobile Will Blanket 95 Percent of the U.S. Population with High-speed, Fourth-Generation Wireless Internet Access and Mobile Payments

Deal to Combine AT&T, T-Mobile Raises Questions

March 21, 2011

AP - AT&T's surprise announcement that it plans to acquire T-Mobile USA will force federal regulators to confront a difficult antitrust question: Can American consumers get good wireless service at a fair price if they must choose between just two national companies?

That debate will be at the center of the government review of the $39 billion cash-and-stock deal announced Sunday. If approved, the purchase would catapult AT&T past Verizon Wireless to become the nation's largest cellphone service provider.

The deal would combine AT&T Inc., the nation's second-largest wireless carrier, with T-Mobile USA, the fourth-largest, which is now owned by Germany's Deutsche Telekom AG. And it could pave the way for Verizon to go after Sprint Nextel Corp., which would be a distant No. 3 and the only remaining national provider.

None of the smaller U.S. carriers, including Leap Wireless, Metro PCS and U.S. Cellular, has complete nationwide coverage.

Officials at the Justice Department and the Federal Communications Commission could spend a year or more scrutinizing the deal before deciding whether to block it or allow it to proceed with substantial conditions attached.

"I am not convinced that this deal is unthinkable," said Jeffrey Silva, an analyst with Global Medley Advisors. "But it's a very, very heavy lift."

Regulators will conduct a thorough market-by-market analysis to determine how many wireless choices consumers would have in communities across the country. And even if they allow the deal to go through, government officials would probably require the combined company to sell off assets — including wireless spectrum, cell towers and customers — in particular markets that are too concentrated.

The bigger question facing federal officials is whether the enormous cost of building a nationwide wireless network means that a market dominated by only two companies is the best they can hope for.

And if that's the case, what kinds of merger conditions should the government impose on AT&T to prevent it from abusing its power?

"This marketplace doesn't work even before this merger," said Mark Cooper, director of research for the Consumer Federation of America. "I want policymakers to confront the fiction that competition in this market is sufficient to protect consumers."

Cooper, for one, would like to see federal regulators bar AT&T from engaging in common industry practices such as charging consumers large fees for text messaging and for ending contracts before they expire.

He would also like to see government officials impose stronger "network neutrality" rules on AT&T's wireless system to ensure that subscribers can access apps and other online applications without carrier interference.

Net neutrality rules adopted by the FCC late last year prohibit broadband providers from discriminating against online traffic, but they give wireless companies a considerable amount of flexibility to manage traffic on their systems.

Analyst Rebecca Arbogast of the firm Stifel Nicolaus believes government regulators will also consider conditions intended to help smaller wireless providers compete.

Those could include data-roaming obligations, which would require AT&T to let smaller regional wireless companies use its network to send data traffic in places where they do not offer their own service. The FCC is currently considering adopting industry-wide data roaming rules.

Government officials could also impose "special access" obligations, which would guarantee rival wireless companies access to vital lines owned by AT&T that they rely on to connect their towers to broader telecommunications networks and the Internet.

Smaller carriers — most notably Sprint — argue that they pay excessive prices for that access because much of the critical network infrastructure is owned by the big landline telephone companies, AT&T and Verizon, which compete with them in the wireless arena.

If government officials do eventually sign off on AT&T's proposed acquisition of T-Mobile, they will likely require the combined company to sell off wireless spectrum in certain markets. The hope would be that these airwaves — which are in scarce supply — would wind up in the hands of smaller players such as Sprint and Leap, possibly restoring some competition.

Wireless companies are clamoring for more airwaves to keep up with the explosive growth of online apps, mobile video and other bandwidth-hungry wireless applications. Indeed, AT&T has said that one key benefit of the T-Mobile transaction is that it would provide both carriers with access to more spectrum, although AT&T already has an ample supply of spectrum it is not planning to use for several years.

Both the FCC and the Obama administration are exploring ways to free up more spectrum for wireless broadband.

T-Mobile's own unsuccessful struggles to get more wireless spectrum may have helped push it into the arms of AT&T. The company had been aggressively lobbying Congress and the FCC to auction off a prime slice of airwaves freed up in the 2009 transition from analog to digital TV signals.

T-Mobile had hoped to bid on that spectrum and appeared to make a convincing case with the FCC, which had proposed auctioning off the airwaves last year.

But in a major setback for T-Mobile, the agency later backed away from that plan after running into substantial opposition from public safety officials — and their backers in Congress — who want to use the spectrum to build a nationwide wireless network for police officers, firefighters and other emergency workers.

For its part, AT&T rejects the notion that the wireless industry is too concentrated.

James Cicconi, senior executive vice president for external and legislative affairs, noted that consumers will still have a choice of multiple wireless providers — including Leap, Metro PCS and U.S. Cellular — in many markets even if the deal is approved.

He added that the merger will produce significant benefits for the public, as AT&T has promised to blanket 95 percent of the U.S. population with high-speed, fourth-generation wireless Internet access, also known as 4G. That goes to the heart of a top telecom policy goal for both the FCC and the Obama administration, which have pledged to bring high-speed Internet access to all Americans. They see wireless as critical to meeting that goal, particularly in rural areas where it does not make economic sense to build landline networks.

Other factors that could help AT&T sell the deal to the government include its promise to invest more than $8 billion in its 4G network over the next seven years and the fact that the company's workforce is unionized. T-Mobile's workers do not have bargaining rights.

At this point, it's too soon to know whether the merger will be approved.

But what is clear, Silva said, is that "there will be a rich mix of very important policy and political considerations."

State-owned China Mobile is World's Biggest Mobile Phone Operator

• China Mobile has 70% share of the domestic market
• Telecoms group has a strategy to target rural population

January 11, 2010

Guardian - Until just over a year ago, Gong ­Kangshun spent much of his life trekking over the mountains around his remote village in south-west China. It isn't easy to make a living in Xiuxi, a tiny settlement of 58 families deep in Aba county, Sichuan. Gong grows crops on a small plot and sells rare fungi found on the steep slopes nearby. Many young people, including his brother, leave to find work in the factories and shops of China's east.

But a single purchase has shortened his working hours and sent his income soaring – by helping him to find buyers for his fungi. It has even improved his relationships with family and friends.

"I'd panic without my mobile phone," the 35-year-old admits.

Across China, tens of millions have similar tales to tell. Many had never enjoyed phone access until recently. Now, for as little as £20, they can buy a handset, slot in a pre-paid sim card, start calling – and change their lives.

Most, like Gong, can thank one firm: China Mobile. With more than 70% of the domestic market it has 518 million subscribers; more than any other mobile carrier on the planet.

It is the world's largest phone operator by market value and the largest Chinese company listed overseas. Its work on 4G technology and its interest in foreign acquisitions suggest its international profile may soon grow.

Already the company's influence is rippling out across the world, almost unnoticed. The rapid spread of mobiles facilitated by the company's high-speed network roll-out, is both a product of China's aggressive development and a contributor to it – accelerating the pace of life and business, shrinking distances.

Some activists are enthusiastic about the potential for mobiles and the internet to expand the flow of information in a country with heavy censorship. They point to cases where camera phones have captured and shared images of unrest or official abuse.

The authorities certainly seem to be aware of the potential – Chinese social networking sites are strictly controlled and overseas services such as YouTube are blocked. In restive Xinjiang text messaging was turned off after vicious ethnic violence. The authorities also use mobiles for everything from political education to monitoring individuals.

The social and political effects of new technology are rarely straightforward, but for most people, mobiles are simply a part of their life. Whether a highly-paid Shanghai ­executive, or an independent farmer-cum-trader such as Gong, no one can afford to be without a phone – or a signal. China Mobile's 500,000 base ­stations now cover 98% of the population. You can call home from city subway trains, distant fields, or the peak of Mount Everest.

"If you have a requirement, we will have coverage," pledged the firm's chairman and chief executive Wang Jianzhou, who has more than three decades of experience in the sector.

"When we started this business we thought very few people would use mobile phones – only the rich," he said. Now he is dissatisfied with a penetration rate of 57%. "I think every adult should have at least one mobile … they are an extension of human ears, eyes and mouths."

Before the network reached Xiuxi, in late 2008, Gong used the phone perhaps twice a month. Each time he would walk for an hour to the nearest landline to call traders interested in buying the valuable "caterpillar" and "sheep stomach" fungi used in Chinese medicine.

"Now, on a busy day, I might make 20 calls," he said. "I can contact buyers in Chengdu and Shanghai. I can do business sitting at home and buyers can reach me, too."

News from outside

His income has risen 50%, to 20,000 yuan (£1,820). And instead of walking seven hours a day to find the fungi collectors, he can call and ask them to deliver.

In his spare time, he chats to his younger brother, a chef in Zhejiang province who comes home at most once a year. Villagers hear a lot more news from the outside world these days – even Gong's 14-year-old son has his own phone. In 1997, there were just 10 million mobile users in China; by 2005, China Mobile had 240 million. Since then it has more than doubled.

The government pushes all carriers to serve the poorest. But since taking charge at China Mobile in 2004, Wang has shown sceptics that focusing on rural areas is a viable business strategy.

"Many analysts and investment bankers told me: never go to rural areas because they are low revenue. You will not make a profit," Wang said, in an interview at his spacious but low-key office in the company's headquarters on Beijing's Financial Street.

"I didn't believe that … with fixed lines, providing rural services is very, very difficult and expensive. [We have] low average revenue per user – but also low costs."

With a penetration rate of just 37%, there is plenty of room for growth among China's 700 million rural population. And there is plenty of demand. In Yangcun county, close to Beijing, Chen Fengmei anxiously scrolls through her latest text message: advice from officials on how the day's weather will affect her tomato crop. Another villager, Li Chunyu, checks the latest market prices for his pigs, no longer needing to trust middlemen or to give them a cut of his profits.

"I never need to go anywhere. I can stay on the farm and find out everything," he said.

Some wonder whether China Mobile's success is down to business acumen or simply that the Chinese government owns a stake of more than 74%. Public investors hold the rest – the firm is listed in New York and Hong Kong, where it is technically domiciled.

"We are all wondering whether China Mobile really has the mojo, or whether whatever position it has is really a government favour," said David Wolf of corporate advisory firm Wolf Group Asia. "I think China Mobile would argue they have been victims of disfavour in recent years … the fact the company didn't simply implode suggests a lot of good inside the organisation."

In 2008, officials reorganised the telecoms sector, strengthening competition and awarding the firm the least mature of the 3G standards.

China Mobile had previously snapped up 83% to 88% of new subscribers, said Mark Natkin, managing director of Marbridge Consulting, a Beijing-based telecoms and IT specialist. As its rivals settled down, that share rose. But by October 2009, it had fallen to 56%.

"Now there are three players and the market is very, very competitive," Wang said.

"We think its normal that we have a reduced share of new subscribers. But the total market still has big potential."

The costs of introducing 3G and the impact of the global downturn contributed to the firm's only fall in profits for a decade, in the second quarter of 2009. Although profits have rebounded, the slight year-on-year rise to 28.6bn yuan in the third quarter was less than analysts had predicted.

Last week also saw unwelcome news when China Mobile sacked its vice-chairman Zhang Chunjiang, citing alleged serious financial irregularities. He had earlier been sacked by the parent company, according to state media. China Mobile said his removal would have no material effect on the business; reports ­suggest the claims relate to Zhang's ­previous job.

The company's mid to long-term prospects depend on customers like pig farmer Li making more frequent and longer calls and using data services – as Wang tacitly acknowledges when he remarks that "we hope all mobile phones will become smart phones".

Li's 20 to 30 calls a day bring in little income for China Mobile; perhaps 2,000 yuan (£180) a year. Even that is double the average. "I know you can use mobiles for other things besides calls and texts, but I don't know how," he confided. "Sometimes I look at their screens and feel a little dizzy."

The good news for China Mobile is that his children and their friends are using their phones to browse the web, play games and watch videos. But customers may be tempted to turn away from the firm as they trade up. The company is heavily promoting its 3G service, launched last January and in November, almost 3 million people used the network, which serves 70% of cities.

iPhone

Yet China Unicom, which launched its 3G network in October, is catching up fast, with a million users in its first month. China Mobile must fight off strengthened competition with the domestically-developed TD-SCDMA (time division synchronous code division multiple access) standard.

Some wondered if the firm missed a trick when it failed to reach a deal for the iPhone, now available through China Unicom. Wang says it is still negotiating with Apple and highlights a deal for a TD-SCDMA BlackBerry as "very big progress". Yet he is noticeably unenthusiastic about 3G.

"It's a very difficult job to operate ­TD-SCDMA because no other operator has used it before. But China Mobile has big experience in rolling out and maintaining networks," he said.

"It's difficult but we think we can reach our target. And TD-SCDMA does have advantages – easy migration to LTE."

TD-LTE (long term evolution) is a 4G standard offering super-fast downloads, which China Mobile will trial at the World Expo in Shanghai this year.

Wang foresees 4G products on the market within three years and says overseas operators are already interested. "It's expected to be a much stronger competitor," Natkin confirmed.

"TD has always been playing catch-up. In the 4G arena China is actually at – if not ahead of – the starting line."

China Mobile hopes to extend its reach in other ways. In 2007 it bought Pakistan's Paktel, now renamed ChinaMobile Pakistan and branded as Zong.

Wang describes the telecoms market there as "very competitive" and "difficult". But he sees the purchase as a first step in international expansion and his eyes gleam at the prospect of snapping up other overseas carriers.

The chief executive, who spoke fluent English throughout the interview, has fostered relationships with his peers abroad and watches them closely.

"We are trying to find other opportunities for acquisitions, but it's not easy. We are waiting for ­opportunities whether in ­developed or developing countries," he said.

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