AT&T talking up its smaller rivals [Correction 5/25/11]

These days, the nation's second-tier and regional wirelesscarriers are receiving some glowing advertising from a seemingly oddpitchman: AT&T.

The praise is hardly intended as flattery but is a criticalelement of AT&T's strategy to persuade federal antitrust officialsthat its $39 billion acquisition of T-Mobile will not harmcompetition in markets across the country.

"Sprint has already achieved substantial success in themarketplace by offering attractive pricing plans and upgrading itssmartphone portfolio," said Joan Marsh, an AT&T vice presidentfocusing on federal regulatory affairs, sounding much like aspokeswoman for the rival company at a news briefing Thursday.

"MetroPCS and Leap, which are the leading all-you-can-eat dataproviders . . . have enjoyed great success focusing on value-oriented services, and both have begun moving upmarket," Marshgushed.

The rivals were not convinced. Sprint and smaller niche playersthat belong to the Rural Cellular Association countered in duelingmedia calls and statements Thursday that AT&T's move to consolidatetwo of the three largest wireless carriers will crush their businessprospects.

"We are certainly flattered that they recognize we are startingto have some success in the marketplace," Vonya McCann, Sprint'ssenior vice president of government affairs, said with a chuckle inan interview. "What we're concerned about if this transaction isapproved is that innovation and competition that consumers areenjoying will cease."

Whether AT&T will unfairly dominate the industry if it acquires T-Mobile partly depends on whether federal regulators evaluate eachindividual market across the country or look at the nation as awhole.

In a filing Thursday with the Federal Communications Commission,AT&T contends that competition would remain heated in the nation'sbiggest markets.

But Eric Graham, vice president of strategic and governmentrelations at Cellular South, said a market-by-market evaluation isoutdated.

One problem that smaller carriers face, Graham said, is gettingthe latest devices from manufacturers, which look at a company'snationwide reach when assessing whether to sell their phones with acertain carrier.

"As much as AT&T may want to claim that it will be competitive,carriers must offer nationwide coverage to be competitive," he said."It's all done on a nationwide scale."

AT&T needs approval from the FCC and the Justice Department toacquire T-Mobile, a process that could take about a year. Theagencies will determine whether the bid will reduce wireless phoneaccess, raise consumer prices and create an anti-competitiveindustry.

If the acquisition is approved, AT&T would have about 130 millioncustomers. Along with Verizon, which has about 100 million, the twocompanies would control about 80 percent of the market, according toCraig Aaron, chief executive and president of Free Press, aWashington nonprofit group focused on the Internet and media policy.

That would represent an entrenched duopoly, critics say.

"You're going from four nationwide competitors down to three, soit's hard to imagine how Sprint is going to be able to keep up withthem," Aaron said. "If Verizon or AT&T want an exclusive deal on aphone, Sprint isn't going to stand much of a chance. I think AT&Twill say anything to give the appearance of greater competition."

Cathy Sloan, a vice president with the Computer & CommunicationsIndustry Association, a Washington-based trade group that opposesAT&T's merger, added that smaller and regional wireless carriers areat an inherent disadvantage because they must rely on the bigcarriers such as AT&T for affordable data roaming charges.

"Wall Street analysts and venture capitalists will say, 'Youknow, Verizon might charge you so much so you have to raise yourprices, so why should we invest in you?'aEUR S" Sloan said.

Marsh, the AT&T vice president, said during the news briefingthat the merger would provide cellular service to more than 97percent of the country. If federal officials blocked the merger, itwould take another eight years for the company to reach that goal.

She added that AT&T's network is facing more severe capacityconstraints than its competitors, largely because data demands fromsmartphones have skyrocketed in recent years.

The only carrier that Marsh criticized was T-Mobile, which isowned by the German company Deutsche Telekom. T-Mobile has exhaustedits spectrum, she said, and it does not have the capacity to acquiremore. If the merger goes through, she said, AT&T will preserve T-Mobile customers' pricing plans, but she did not specify for howlong.

"T-Mobile was facing significant challenges," she said. "Itsshare of subscribers has been falling for nearly two years in theface of increased competition from established players like theresurgent Sprint as well as industry mavericks MetroPCS, Leap andothers."