Sprint CEO Has A Few Things To Say About The AT&T/T-Mobile Deal

As mentioned earlier today, the CEO of AT&T will have his first chance to make his case for purchasing T-Mobile USA in front of a Senate subcommittee. But not without the Senators hearing from some parties opposed to the deal, including Sprint CEO Dan Hesse, who pulls no punches in his prepared remarks.

“[I]f the transaction is blocked, wireless competition will thrive and competition, in turn, will continue to drive investment, innovation, consumer choice, and U.S. global leadership in wireless communications,” says Hesse about the AT&T/T-Mobile deal. “If, on the other hand, the DOJ and FCC decide to permit the takeover, the wireless industry would regress toward a 1980s-style duopoly.”

Hesse takes issues with several of the talking points that AT&T CEO Randall Stephenson has been trying to push on the public.

With regard to Stephenson’s claims that prices will continue to go down, Hesse points out that more than 26% of adults in the U.S. are now cellphone-only, which means that both AT&T and Verizon are losing land line customers. These two companies “have the least incentive to price wireless service competitively enough to stimulate ‘cord cutting’ of fixed phone lines,” he says.

While on the topic of landlines, Hesse brings up the little-mentioned fact that AT&T and Verizon each control the land lines required for “backhaul,” the connecting of cell towers to the larger network. He says that these two giants get access to these lines at cost, while Sprint and other competitors have to purchase their backhaul service, often from either Verizon or AT&T. Explains Hesse, “By controlling the availability and price of backhaul, AT&T and Verizon are also able, to a large degree, to control their competitors’ costs and quality of service.”

Speaking of competition, AT&T’s Stephenson pointed to the rapid growth of relatively tiny wireless providers like MetroPCS as a sign that the market will remain fiercely competitive.

But Hesse sees problems with this assertion. First, these companies lack the scale to scare AT&T or Verizon into innovating or dropping prices in any substantial way. More importantly, “the smaller companies all rely on competitive access to the national carriers’ networks for wholesale roaming service, the pricing of which would be controlled by the Twin Bells following the proposed transaction.”

Finally there is AT&T’s repeated claims that this deal will allow the Death Star to expand wireless service to more rural areas.

Hesse calls shenanigans on that statement:

Rural areas do not suffer from any shortage of spectrum given the lower demand for services that results from lower population densities. Rather, rural expansion has been delayed because the lack of population density in rural areas simply makes build-out more expensive per subscriber. The addition of the T-Mobile network to that of AT&T would not change this fact, and would only extend the AT&T network to about 1% more of the population than are already in AT&T’s network coverage.

Congress and the FCC are both considering ways to promote broadband deployment in rural areas. It is noteworthy that of all the rural proposals under consideration, some of which are supported by Sprint, none would result in a corresponding reduction in competition in the rest of the country. If AT&T’s real goal was to reach more people in rural areas, it could invest the $39 billion it is spending to buy T-Mobile to build out service to rural areas rather than raise the prospect of rural development as a pretext to swallow a competitor.

So all the pre-fight trash-talking is out of the way. Tune into the hearing tomorrow at 10:15 a.m. ET to see if this devolves into a AT&T/Sprint thumb war.