Here’s Why the AT&T Merger With T-Mobile Might Be Blocked

Since T-Mobile agreed to be acquired by AT&T (NYSE:T) back in March, the deal has been under heavy scrutiny by anti-trust regulators. Now the Senate’s leading authority on anti-trust issues, Senator Herb Kohl (D-Wis.), is asking regulators to block the $39 billion mergerin a seven-page letter sent to both Attorney General Eric H. Holder Jr. and FCC Chairman Julius Genachowski.The merger would make AT&T the nation’s largest carrier, and would consolidate 80% of all cellphone contracts into the hands of just two carriers, AT&T and Verizon Wireless (NYSE:VZ). With T-Mobile out of the picture, market competition would be severely limited, and consumers would be losing a carrier that has always been a lower-cost alternative to other nationwide carriers.

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Kohl’s objection to the deal is notable as he has only objected to three other mergers in the past decade, and furthermore, because he is retiring at the end of his current term, which means he has no ulterior motive for his objections.  While he and other members of Congress have no official role in reviewing the mergers, they do have the ability to influence regulators’ thinking. Congress controls the budgets of government agencies like the FCC and can call on agency heads to appear before Congress to discuss their decisions.

But of course AT&T (NYSE:T) objects to Kohls’ reasons for opposing the merger, saying that he “ignores the many positive benefits and numerous supporters of the transaction.” The Communications Workers of America has said that the merger would result in the creation of tens of thousands of new jobs. Many governors and lawmakers are also in favor of the merger.

At issue is whether to adopt a market-by-market approach to the merger, or look at it from a national perspective. If looked at from a national perspective, the wireless industry would be looking at a small oligopoly of two, maybe three carriers if including Sprint‘s (NYSE:S) comparatively measly market share. However, there are regional and local carriers like MetroPCS (NYSE:PCS) and Leap Wireless (NASDAQ:LEAP) that provide more competition on a market-by-market basis.

But Kohl objects to that reasoning, noting that smaller carriers must pay larger, national carriers to rent their cell towers in order to provide broader coverage for their customers, who would otherwise be unable to use their mobile phones when leaving the region covered by their carrier. With limited competition on a national-level, the biggest carriers could charge exorbitant amounts of money to local wireless providers. Furthermore, exclusive handset agreements like that AT&T had for so long with Apple (NASDAQ:AAPL) as the sole carrier for its iPhone would draw customers to the national carriers because local carriers would be unable to afford deals providing customers with the hottest new devices, which would include offering subsidies and paying for marketing and sales costs for the device.

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