AT&T-Mo Is the Tipping Point for a Broadband Duopoly

At a Senate Judiciary subcommittee on AT&T’s proposed purchase of T-Mobile, it was hard to find anything but tepid support for the merger of the nation’s second- and fourth-largest wireless providers. And whatever support there was for the deal was associated with merger conditions that would put the FCC in charge of regulating prices, speeds and perhaps even access to devices. That’s not a market that most in the technology industry would condone since it requires the government to become more involved in the wireless industry.

The CEOs of AT&T (s t) and T-Mobile appeared to weasel out of attempts to get them to discuss confusing statements or get them to swear prices would go down for consumers as a result of this deal. When pressed on the topic, AT&T CEO Randall Stephenson said the history of previous mergers has resulted in dropped prices for voice and data (on a per-megabyte basis). He’s not wrong, but his history ignores the existence of T-Mobile and Sprint (s s) as competitors while AT&T and Verizon (s vz) gobbled up smaller players. It was also fun to watch T-Mobile CEO Phillipp Humm and Stephenson squirm around definitions of the words competitor and “nationwide network.”

The hearing was replete with such moments, and is actually an excellent watch, with far more information than I expected about spectrum holdings, the future of Sprint in a post-merger world and the cost details for T-Mobile customers under AT&T. For the record, Stephenson said AT&T customers won’t get T-Mo pricing, T-Mo prepaid customers get to keep their plans, and T-Mo postpaid customers will be able to keep their plans as long as they upgrade to a “comparable” phone. Of course we have seen how carriers have reclassified phones to get users on data plans.

However, the most compelling issue — and the one that strikes deepest — is the direct link between AT&T’s and Verizon’s landline networks and the benefits those accrue from the large wireless carriers having access to those networks. As Sprint has so elegantly pointed out before, smaller carriers such as Sprint and T-Mobile pay fees to AT&T and Verizon in order to connect their towers to the Internet, leaving the industry’s smallest players to help boost their competitor’s bottom line. Yet, still T-Mobile and Sprint offer customers cheaper plans.

Sprint CEO Dan Hesse didn’t outright say that his company would fail if this deal went through, but he did say it would make it harder for Sprint and would position it as a takeover target. That could lead to a duopoly on the wireless market that is echoed by a duopoly (between cable providers and telecommunications companies) in wireline markets around the country. Both Hesse and Victor Meena, the CEO of Cellular South, stressed that the emergence of that duopoly could lead to a problem for rural carriers and second-tier players in terms of paying for backhaul access, data roaming fees and access to devices.

Some senators and participants seemed inclined to address many of these issues with conditions such as mandating interoperable networks or price controls, but that puts the FCC in charge of watching pricing and keeping tabs on monopolistic practices across the industry. That level of interference doesn’t seem like something anyone in the industry wants. “I think we want to stick with competition rather than regulation,” said Gigi Sohn, president and co-founder of Public Knowledge.

Overall, after watching the hearing, and during this trip to Washington D.C., I feel more optimistic about this deal getting quashed.