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States Could Play Important Role in Shaping Outcome of AT&T Merger

NATIONAL JOURNAL

As AT&T makes its case in Washington for why federal regulators should approve its proposed acquisition of T-Mobile USA, AT&T must also pass muster with state utility commissioners and attorneys general in more than a dozen states.

The proposed merger between the nation’s second-biggest wireless provider AT&T and No. 4 T-Mobile must be approved by the Federal Communications Commission and Justice Department. However, several state officials also want a say in the merger, conducting inquiries that could impact the outcome of the deal.

Among the most high-profile state investigations is the California Public Utility Commission’s probe into the $39 billion deal. The commission has held several hearings on the proposed merger.

In a June 15 document outlining its investigation of the matter, the commission outlined the scope of any proposed actions related to the merger. The commission said its investigation would “analyze what, if any, conditions related to California-specific effects of the merger may be appropriate, and whether additional commission action is warranted. We anticipate that this investigation will also develop a record to inform additional comments that the commission may file with regard to the merger application at the Federal Communications Commission.”

The California commission added that it hopes to make a decision by October, although reports in recent days have indicated that timeline could slip.

In a filing before the California commission, AT&T has argued that the transaction will allow it to provide Californians with improved service and greater bandwidth that will enable it to move forward with the next generation of wireless broadband.

“AT&T and T-Mobile USA confront growing spectrum and network capacity constraints, and this transaction will create immense new capacity that will produce enormous benefits to consumers,” AT&T said in the July 6 filing with the state commission. “That new capacity will provide a more robust platform for the next generation of bandwidth-intensive mobile applications while improving consumers’ overall service quality through faster data speeds and fewer dropped and blocked calls.”

Among those opposing the merger in California and at the federal level is California-based Consumer Watchdog, which argues that AT&T is making many of the same promises in its bid for T-Mobile about improved service and lower rates that it did when it bought Cingular Wireless in 2004. But the advocacy group contends AT&T has failed to abide by those pledges.

“Federal and state officials should not even contemplate approving AT&T’s purchase of T-Mobile when AT&T still hasn’t paid back its customers for the huge fees and other illegal overcharges it forced people to pay when it broke its promises after the merger with Cingular back in 2004,” Consumer Watchdog’s Harvey Rosenfield said in a statement on Wednesday.

California is one of five state public utility commissions examining the matter. Three -- Arizona, Louisiana, and West Virginia -- already have approved the deal. The fifth state, Hawaii, is still examining the merger.

Rob Thormeyer, a spokesman for the National Association of Regulatory Utility Commissioners, said many states do not have authority over wireless mergers. “Those that do have authority are taking it up,” he said.

While state authority is generally limited to the terms and conditions of wireless services, the state regulators can impose conditions and concessions on wireless mergers, he added. “AT&T can’t ignore them,” he said.

Sprint spokesman John Taylor and others note that California could impose significant conditions on the merger. Sprint is urging federal regulators to block the deal. Jay Himes, a partner at Labaton Sucharow who chairs the firm’s antitrust group, said while the public utility commissions can’t block the deal they could throw up significant roadblocks.

New York’s Department of Public Service is not investigating the matter but sent a letter to the FCC in mid-June voicing strong concerns with the merger. “Applying the FCC's initial screens to this proposed merger indicates it will have significant anticompetitive impacts that will be felt, in particular, in New York State,” the department said. “In view of this, the FCC should not approve this transaction without subjecting it to heightened scrutiny and performing a rigorous, market-specific review of its impacts on New York State's wireless voice and broadband markets.”

In addition to the probes by the public utility commissions, at least 11 state attorneys general are also investigating the merger, including those in California and New York, according to Sprint, which has received requests for documents by the top cops in those states.

If they choose to do so, those attorneys general could sue on their own or as a group under federal antitrust laws to block the merger, said Himes, who served as the former antitrust bureau chief in the New York Attorney General's Office.

“If you had a critical mass of states that really think they had local conditions that were going to be impaired, I think that would be a serious lawsuit,” Himes said, adding, “I don’t think they [AT&T and T-Mobile] should dismiss the state activity.”

When asked about possible action by state officials, an AT&T spokeswoman touted the support the company has received for the merger from many state officials, including 26 governors, 102 mayors and 11 state attorneys general.

“Our merger with T-Mobile will result in greatly improved service quality and our 4G LTE service will bring tremendous social and economic benefits to tens of millions of consumers across the country,” the spokeswoman said.