[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]


 
                     HOW WILL THE PROPOSED MERGER BETWEEN AT&T 
                           AND T-MOBILE AFFECT WIRELESS 
                       TELECOMMUNICATIONS COMPETITION? 
=======================================================================


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INTELLECTUAL PROPERTY,
                     COMPETITION, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               ----------                              

                              MAY 26, 2011

                               ----------                              

                           Serial No. 112-45

                               ----------                              

         Printed for the use of the Committee on the Judiciary


   Available via the World Wide Web: http://judiciary.house.govFOR 
                               SPINE deg.
















        HOW WILL THE PROPOSED MERGER BETWEEN AT&T AND T-MOBILE 
            AFFECT WIRELESS TELECOMMUNICATIONS COMPETITION?













HOW WILL THE PROPOSED MERGER BETWEEN AT&T AND T-MOBILE AFFECT WIRELESS 
                    TELECOMMUNICATIONS COMPETITION?

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INTELLECTUAL PROPERTY,
                     COMPETITION, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 26, 2011

                               __________

                           Serial No. 112-45

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

66-543 PDF                       WASHINGTON : 2011 

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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             DEBBIE WASSERMAN SCHULTZ, Florida
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]

      Sean McLaughlin, Majority Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

  Subcommittee on Intellectual Property, Competition, and the Internet

                   BOB GOODLATTE, Virginia, Chairman

                   BEN QUAYLE, Arizona, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
Wisconsin                            JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
STEVE CHABOT, Ohio                   JUDY CHU, California
DARRELL E. ISSA, California          TED DEUTCH, Florida
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
JIM JORDAN, Ohio                     JERROLD NADLER, New York
TED POE, Texas                       ZOE LOFGREN, California
JASON CHAFFETZ, Utah                 SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas                MAXINE WATERS, California
TOM MARINO, Pennsylvania             DEBBIE WASSERMAN SCHULTZ, Florida
SANDY ADAMS, Florida
[Vacant]

                     Blaine Merritt, Chief Counsel

                   Stephanie Moore, Minority Counsel































                            C O N T E N T S

                              ----------                              

                              MAY 26, 2011

                                                                   Page

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     1
The Honorable Melvin L. Watt, a Representative in Congress from 
  the State of North Carolina, and Ranking Member, Subcommittee 
  on Intellectual Property, Competition, and the Internet........     2
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Committee on the Judiciary.......     4
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Intellectual Property, 
  Competition, and the Internet..................................     5

                               WITNESSES

Randall Stephenson, Chairman, Chief Executive Officer, and 
  President, AT&T, Inc.
  Oral Testimony.................................................    14
  Prepared Statement.............................................    16
Rene Obermann, CEO, Deutsche Telekom AG
  Oral Testimony.................................................    21
  Prepared Statement.............................................    23
Steven K. Berry, President and CEO, Rural Cellular Association
  Oral Testimony.................................................    26
  Prepared Statement.............................................    28
Parul P. Desai, Policy Counsel, Consumers Union
  Oral Testimony.................................................    41
  Prepared Statement.............................................    43
Joshua D. Wright, Professor, George Mason University School of 
  Law
  Oral Testimony.................................................    88
  Prepared Statement.............................................    91
Andrew I. Gavil, Professor, Howard University School of Law
  Oral Testimony.................................................   116
  Prepared Statement.............................................   118

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, Ranking 
  Member, Committee on the Judiciary, and Member, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     5
Material submitted by Parul P. Desai, Policy Counsel, Consumers 
  Union..........................................................    54
Material submitted by the Honorable Melvin L. Watt, a 
  Representative in Congress from the State of North Carolina, 
  and Ranking Member, Subcommittee on Intellectual Property, 
  Competition, and the Internet..................................   143

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Randall Stephenson, 
  Chairman, Chief Executive Officer, and President, AT&T, Inc....   199
Response to Post-Hearing Questions from Rene Obermann, CEO, 
  Deutsche Telekom AG............................................   212
Response to Post-Hearing Questions from Steven K. Berry, 
  President and CEO, Rural Cellular Association..................   214
Response to Post-Hearing Questions from Parul P. Desai, 
  Communications Policy Counsel, Consumers Union.................   313
Response to Post-Hearing Questions from Joshua D. Wright, 
  Professor, George Mason University School of Law...............   315
Response to Post-Hearing Questions from Andrew I. Gavil, 
  Professor, Howard University School of Law.....................   320


HOW WILL THE PROPOSED MERGER BETWEEN AT&T AND T-MOBILE AFFECT WIRELESS 
                    TELECOMMUNICATIONS COMPETITION?

                              ----------                              


                         THURSDAY, MAY 26, 2011

              House of Representatives,    
         Subcommittee on Intellectual Property,    
                     Competition, and the Internet,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10:35 a.m., in 
room 2141, Rayburn Office Building, the Honorable Bob Goodlatte 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Smith, Quayle, 
Sensenbrenner, Coble, Chabot, Issa, Pence, Jordan, Poe, 
Chaffetz, Griffin, Marino, Adams, Watt, Conyers, Deutch, 
Sanchez, Nadler, Lofgren, Jackson Lee, and Waters.
    Staff present: (Majority) Holt Lackey, Counsel; Olivia Lee, 
Clerk; and Stephanie Moore, Minority Counsel.
    Mr. Goodlatte. Good morning and welcome to this hearing of 
the Subcommittee on Intellectual Property, Competition, and the 
Internet.
    This hearing poses the question: How will the proposed 
merger between AT&T and T-Mobile affect wireless 
telecommunications competition?
    Companies merge and acquire one another every day in 
America. In a free market economy like ours, companies are 
generally free to organize themselves and their assets as they 
see fit. While there is general freedom for companies to merge, 
even if the merger forms a large company, the antitrust laws do 
place some limits on these transactions. The specific limit is 
set by section 7 of the Clayton Act which prohibits mergers 
that substantially lessen competition or tend to create a 
monopoly.
    This strikes the right balance. Competition is the backbone 
of a successful, free market. Competition spurs innovation and 
ensures that the market allocates resources efficiently. A free 
market cannot work without competition, and a merger that 
decreases competition weakens the free market.
    The Department of Justice is in the process of reviewing 
the proposed merger between AT&T and T-Mobile to determine if 
it is anticompetitive. In general terms, the Department will 
block the merger if it believes that after the merger AT&T or 
Verizon would have enough market power to raise prices, 
decrease output, or diminish innovation without being held to 
account by competition.
    AT&T and T-Mobile argue that this merger will improve 
competition. They believe that the merger will let them 
increase their spectrum capacity and network range so that they 
can increase output and compete more vigorously for customers.
    Past mergers in the wireless industry have not led to price 
increases, output reductions, or less innovation. Over the past 
decade, the wireless market has been marked by innovation, 
expansion, and lower prices despite a series of mergers that 
significantly consolidated the industry.
    But there are legitimate questions about whether this 
merger could move the wireless market past an anticompetitive 
tipping point. This merger results in more concentration than 
any previous merger in the wireless market. The merger combines 
the second and fourth largest wireless carriers to create the 
largest carrier which will control over 40 percent of the 
wireless market. Unlike previous mergers, this merger is 
between two nationwide wireless networks, and it will reduce 
the number of nationwide wireless networks from four to three.
    Can the wireless industry remain competitive with this 
level of concentration?
    AT&T, like Verizon, controls much of the wireline telephone 
networks that were originally built by the old Bell monopoly. 
Other wireless carriers have to pay AT&T and Verizon to carry 
their calls and data over this wireline network. This service 
is called ``backhaul.'' Will AT&T and Verizon be able to 
manipulate their power in the backhaul market to raise prices 
on other wireless companies and stifle competition?
    Smaller providers who only have regional networks have to 
enter roaming agreements so that their customers can have 
service when they venture beyond network range. Will this 
merger give AT&T market power to raise roaming prices?
    Increasingly wireless companies enter into agreements with 
mobile device manufacturers to be the exclusive service 
provider for a new device. Famously, for years after its 
introduction, the iPhone was only available with AT&T service. 
Will AT&T and Verizon be able to leverage their wireless market 
share to deny the best devices to their competitors or to 
stifle handset innovation?
    It is ultimately the Department of Justice's job to answer 
these and other questions raised by this merger. The Department 
should follow the facts and the law in an evenhanded manner and 
block the merger only if they conclude that it is 
anticompetitive.
    Congress has no formal role in the DOJ or FCC merger review 
process, but hearings like this provide a public venue to ask, 
answer, and debate these questions which are of great 
importance to American consumers. I look forward to the 
testimony of the witnesses, the debate among the Members of the 
Committee, and in the end, a wise decision by the Department of 
Justice that ensures a competitive future for wireless 
communications in America.
    It is now my pleasure to recognize the Ranking Member of 
the Subcommittee, the gentleman from North Carolina, Mr. Watt.
    Mr. Watt. I thank you, Mr. Chairman.
    The proposed merger between AT&T and T-Mobile raises 
important issues of competition policy in the wireless space. 
Over the last 2 decades, the wireless industry has grown 
exponentially from just over 3 million subscribers in the late 
1980's to almost 300 million today.
    In the current wireless market, four major carriers provide 
service throughout the country: Verizon, AT&T, Sprint, and T-
Mobile, in order of market share. Therefore, when the 
horizontal merger between the second and fourth largest 
wireless carriers was announced in late March, a predictable 
frenzy of concerns about the probable impact of the merger on 
competition and consumers erupted in the press and in general 
discussion.
    Will the proposed merger result in an unregulated or 
heavily regulated duopoly of Verizon and AT&T with a combined 
share of almost 76 percent of the market?
    What, in fact, is the relevant market definition?
    Will prices increase?
    What are other potential impacts on consumers, short- and 
long-term?
    What will be the impact on innovation?
    Will Verizon and AT&T corner the market on handsets, 
applications, and other devices?
    How will access to roaming and backhaul services be 
impacted?
    Will future spectrum auctions be less competitive or 
otherwise negatively impacted?
    How will the merger impact younger and poorer customers, 
disproportionately minority based on recent reports, who rely 
on their wireless service to access the Internet?
    What about jobs? Are the synergies identified by the merger 
participants a euphemism for massive job loss?
    These are all legitimate and complicated questions, and 
they are precisely why the Federal Communications Commission 
and the Department of Justice are conducting independent, fact-
intensive investigations into the public interest and 
competitive implications of the deal.
    The Department of Justice conducts its review under the 
antitrust laws, while the FCC acts pursuant to the 
Communications Act to assess whether an industry merger is 
within the public interest. Presumably what will be the impact 
on consumers? The Department of Justice's evaluation alone is 
projected to last up to 1 year.
    My belief in this context is that we should allow these 
agencies to do their jobs unfettered by political pressure from 
Congress. While I believe this hearing will educate Members of 
Congress and the public, I also know that we will never have 
access to all the facts and data on which the agencies base 
their determination of whether to approve or disapprove the 
merger with or without conditions.
    I appreciate the Chairman's scheduling the hearing, 
however, because I believe it enables the public to learn more 
about what is at stake, and an informed public is an 
incentivized public and an educated and active public is good 
for democracy. So it is in the spirit of acquiring as much 
information as we can in this limited forum to develop a 
publicly available record that I look forward to hearing from 
our panel today.
    And with that, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Goodlatte. I thank the gentleman.
    And now it is my pleasure to recognize the Chairman of the 
Judiciary Committee, the gentleman from Texas, Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    The past 2 decades have seen astonishing growth and 
innovation in wireless communications. In 1989, just over 3 
million Americans had wireless telephones. Today there are 
nearly 300 million wireless subscribers. A cell phone is no 
longer just for making voice calls. Americans now use wireless 
technology to download books and music, send email and text, 
surf the Web, and stream movies and TV shows. This wireless 
revolution, together with the Internet revolution, promises to 
transform the spread of ideas and information more than any 
development since the printing of the Gutenberg Bible.
    We can thank competition for this world-changing 
innovation. Competition has spurred invention and improvements 
at every level of the wireless economy. It has led to new 
devices, applications, and networks that were the stuff of 
science fiction not long ago. Wireless competition has produced 
miracles in the recent past. Today's hearing is about wireless 
competition's future.
    The Department of Justice is currently reviewing the 
proposed merger between AT&T and T-Mobile to determine if it 
will lessen competition. This proposed merger means tremendous 
change for the wireless industry and millions of consumers. 
That is why it is important to proceed carefully and make sure 
we get it right.
    A merger of this size, which would concentrate over 40 
percent of the wireless market in one company, raises some 
questions. AT&T and T-Mobile argue that the merger will 
actually increase competition. They say the merger will allow 
them to unleash the next generation of wireless service more 
efficiently than either could alone.
    And AT&T says that it is facing a spectrum crunch brought 
about by the advent of smart phones and tablet computers that 
transmit large amounts of data. AT&T argues that its spectrum 
shortage will limit its ability to compete effectively unless 
the merger is approved. AT&T and T-Mobile argue that the merger 
will solve both AT&T's spectrum crunch and T-Mobile's lack of a 
4G LTE network.
    Combined, AT&T and T-Mobile hope to improve service, 
innovate, and expand their network into underserved rural 
areas. In their vision wireless companies, including upstarts 
like MetroPCS and LightSquared, will continue to compete, 
innovate, and decrease prices.
    Opponents of the merger paint a different picture. Many 
wireless competitors and consumer advocates believe that a more 
concentrated wireless industry will reduce competition, stifle 
innovation, and raise prices. In particular, merger opponents 
worry about access to new devices, roaming agreements, and 
backhaul services.
    It is the Department of Justice's job to predict which of 
these very different pictures of the merger is more likely. The 
Department should make this prediction based on a fair analysis 
of the facts, economics, and the law.
    A single congressional hearing cannot examine all of the 
detailed economic evidence that is needed to accurately predict 
the effects of this merger, but this open forum should serve to 
clarify and illuminate the issues presented by this merger. The 
Americans deserve the full picture.
    Thank you, Mr. Chairman. I will yield back.
    Mr. Goodlatte. I thank the gentleman.
    The Ranking Member of the full Committee, the gentleman 
from Michigan, Mr. Conyers, is recognized.
    Mr. Conyers. Thank you, Chairman Goodlatte.
    I applaud the comments that have been made before me, and I 
particularly agree with Chairman Smith in suggesting that we 
may need more than this hearing to continue our examination of 
the merger.
    Now, as one who is widely known for having an open mind 
about issues, I want to confess that I have never met a merger 
that I liked. They always cost jobs and they create less 
competition and they hurt consumers.
    That being said, that is what makes the hearing so 
important here because we will never know what the Justice 
Department 
and FCC did to come to their agreements. At least we will get a 
glimpse of what the corporate leaders claim their rationale is 
for this merger.
    There are a lot of people that need to be heard here: 
Communications Workers of America and Sprint, labor, the 
president of the UAW, Bob King.
    Now, we concede that AT&T has a unionized workforce. That 
makes them good corporate people, and they are more responsible 
than some of their competitors. We give them all that kind of 
credit.
    But here is the concern here. Everything that we are 
talking about that is going to happen that is so great from 
this merger is really already accomplishable. You don't need a 
merger to do what you claim you need the merger for to 
accomplish. What are the two-page ads going on on the Hill 
papers today? We need the merger to reach 97 percent of 
Americans instead of the 80 percent that would be covered under 
the current plan.
    Industry analysts and competitors point to the fact that 
AT&T currently has spectrum holdings to already accomplish this 
laudable goal. They do not need T-Mobile to do it. If the 
acquisition is allowed by the regulators, the deal would give 
AT&T and Verizon over 70 percent of the wireless market.
    And what about the little guys? Where does creation come 
from in this business? It doesn't come from the biggest people 
unless they buy up the small people. It comes from the small 
people. And so we are missing a big opportunity here if we 
don't look very carefully at what is going to happen.
    And what is the other result? The next biggest people have 
got to do the same thing that they are proposing here today. 
This won't be the last one. If this gets through, there is 
another one on the drawing boards already. Who doesn't know 
that?
    And so I will submit the rest of my statement so we can 
hear the witnesses.
    [The prepared statement of Mr. Conyers follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Goodlatte. I thank the gentleman.
    Without objection, all other opening statements will be 
made a part of the record.
    We have a very distinguished panel of witnesses today. Each 
of the witnesses' written statements will be made a part of the 
record in its entirety. And I ask that each witness summarize 
his or her testimony in 5 minutes or less. To help you stay 
within that time, there is a timing light on your table. When 
the light switches from green to yellow, you will have 1 minute 
to conclude your testimony. When the light turns red, it 
signals that the witness' 5 minutes have expired.
    It is the custom of this Committee to swear in our 
witnesses before their testimony. So at this time, I would ask 
them to stand and be sworn.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you and please be seated.
    Our first witness is Randall Stephenson, Chairman, CEO, and 
President of AT&T, Inc.
    Our second witness is Rene Obermann, CEO of Deutsche 
Telekom AG, the German-based parent company of T-Mobile USA.
    Our third witness is Steven Berry, President and CEO of the 
Rural Cellular Association, a trade association made up of 
nearly 100 wireless carrier companies ranging from small, rural 
carriers to larger carriers like Sprint.
    Our fourth witness is Parul Desai, Communications Policy 
Counsel for Consumers Union, publisher of Consumer Reports 
magazine.
    Our fifth witness is Professor Joshua Wright of George 
Mason School of Law. Professor Wright focuses academic work on 
antitrust law and holds a J.D. and Ph.D. in economics from 
UCLA.
    Our sixth and final witness is Professor Andrew Gavil of 
Howard University School of Law where he has taught antitrust 
law since 1989. Professor Gavil received his J.D. from 
Northwestern University School of Law.
    We will be pleased to start with Mr. Stephenson. Welcome.

          TESTIMONY OF RANDALL STEPHENSON, CHAIRMAN, 
       CHIEF EXECUTIVE OFFICER, AND PRESIDENT, AT&T, INC.

    Mr. Stephenson. Thank you, Chairman Smith and Chairman 
Goodlatte and Ranking Member Conyers and Ranking Member Watt, 
other Members of the Subcommittee.
    I am Randal Stephenson, Chairman and CEO of AT&T, and I do 
want to thank you for the opportunity to talk with you about 
the consumer benefits of AT&T's acquisition of T-Mobile USA 
from Deutsche Telekom because, first and foremost, this 
transaction is about consumers. It is about specifically 
keeping up with consumer demand. It is about having the 
capacity to drive innovation and competitive prices. It is 
about giving consumers what they expect and that is fewer 
dropped calls, faster speeds, and access to high-speed fourth 
generation LTE mobile Internet service, and that is whether 
they live in a large city, in a small town, or out in the 
country.
    It is about achieving these benefits purely with private 
capital, helping to deliver a private market solution to a very 
important public policy objectives, as we take fourth 
generation LTE to more than 97 percent of all Americans.
    And I would underscore the fact that this means good jobs, 
good jobs for employees of the combined company, good jobs for 
the vendors who support our efforts, and good jobs in the 
communities served by the network that will result from this 
investment.
    Over the past 4 years, we have seen a revolution in 
wireless. Smart phones and mobile apps have exploded. 
Innovation has cycled at an amazing pace. Consumers and the 
economy have all benefitted, and our network, more than any 
other network, has carried the load. In fact, over the past 4 
years, data volumes on our mobile network have shot up by 8,000 
percent.
    To meet this demand, over this same 4-year period, AT&T 
invested more in the United States than any other public 
company, $75 billion in capital. And we continue to invest at a 
very aggressive pace because the next wave is now already upon 
us and it is in the form of tablets and it is in the form of 
services like mobile high-definition video. In 2015, just 4 
years from now, by the time we get to February of 2015, we 
estimate our network will have already carried as much mobile 
traffic as we carried for the entire year in 2010. And that is 
how fast the mobile Internet is growing.
    Just about the only thing that we know of that can slow 
down this cycle is the lack of capacity to meet the demand. As 
FCC Chairman Genachowski has said--and I would like to quote 
him--if we do nothing in the face of the looming spectrum 
crunch, many consumers will face higher prices as the market is 
forced to respond to supply and demand and frustrating service. 
End quote. None of us want that, and I do applaud the FCC and 
Members of Congress for their leadership on this issue, but the 
fact is even with everyone's best efforts, it will be several 
years before significant amounts of new spectrum are placed 
into service.
    So to meet growing consumer demand we have to find more 
ways to get more capacity from the existing spectrum, and that 
is exactly what this combination will do. Our two companies 
have very complementary assets and spectrum, which means 
combining them will create much more network capacity than we 
have operating independently. More capacity means improved 
service. And it is a very basic concept. In any industry, 
greater capacity is the fundamental driver of sustained 
vigorous competition, innovation, and pricing.
    The U.S. wireless marketplace is among the most competitive 
in the world and it will remain so. Over the past decade U.S. 
wireless prices have steadily and dramatically come down, and 
this transaction allows that trend to continue.
    With this transaction, we are also committed to providing 
LTE mobile Internet service to more than 97 percent of the U.S. 
population. That is nearly 55 million more Americans than our 
pre-merger plans and millions more than any other provider has 
committed to at this point. We all understand the benefits this 
will bring to small towns and rural communities in areas like 
education, health care, and economic development. And we will 
deliver these benefits with the only unionized workforce of any 
major wireless carrier in America.
    Current T-Mobile customers will be able to retain their 
existing rate plans, and they will gain access to LTE service 
which is something T-Mobile had no clear path to offer on a 
standalone basis.
    So, Mr. Chairman, that is a quick overview. It is some of 
the reasons this transaction has won strong support from 
unions, minorities, local representatives, as well as industry 
experts.
    So, again, I thank you for the opportunity and I look 
forward to your questions.
    [The prepared statement of Mr. Stephenson follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Goodlatte. Thank you, Mr. Stephenson.
    Mr. Obermann, welcome.

               TESTIMONY OF RENE OBERMANN, CEO, 
                      DEUTSCHE TELEKOM AG

    Mr. Obermann. Thank you, Chairman Goodlatte, Chairman 
Smith, Ranking Member Watt, Ranking Member Conyers, and Members 
of the Subcommittee. My name is Rene Obermann and I am Chief 
Executive Officer of Deutsche Telekom AG based on Bonn, 
Germany. I appreciate the opportunity to testify today on 
behalf of Deutsche Telekom.
    First of all, I fully agree with Mr. Stephenson's 
introductory comments, and I firmly believe that this 
transaction is the best possible outcome not only for DT, for 
our group, for T-Mobile USA, and for AT&T, but for our 
customers and for wireless competition and for innovation in 
the United States.
    Before I discuss the substantial benefits of this 
transaction for T-Mobile's customers, I would like to first 
provide some background on our decision to proceed with the 
sale of T-Mobile.
    Since Deutsche Telekom's acquisition of VoiceStream almost 
exactly 10 years ago, our U.S. business has faced intense and 
evolving competition in the wireless sector. In recent years, 
in particular, T-Mobile USA has faced increasingly fierce 
competition from a growing number of players, including not 
only large facility-based competitors but also smaller ``no 
contract'' value players, including not only large facility-
based but value players and others such as virtual network 
operators, mobile virtual network operators, regional wireless 
carriers, and so-called over-the-top providers that include 
mobile voice-over-Internet solutions such as Skype which is now 
being acquired by Microsoft.
    T-Mobile has been caught in the middle of this dynamic 
marketplace and has had an increasingly difficult time 
competing. We have lost market share over the past 2 years. In 
the most recent quarter alone, we lost 471,000 contract 
customers while other competitors are growing rapidly, and 
while other competitors are moving quickly to build out and to 
develop their new LTE networks, T-Mobile lacks a clear path to 
LTE deployment.
    To meet the exponential growth in demand for bandwidth and 
network capacity, T-Mobile will need to move to LTE to remain 
competitive, but the company simply does not have access to the 
wireless spectrum needed to deploy LTE effectively. T-Mobile 
has already dedicated its existing spectrum resources to its 
less spectrally efficient GSM and HSPA+ networks. As it is, the 
company is likely to face a spectrum crunch in several key 
markets in the coming years on those technologies alone, even 
without the move to LTE.
    With this backdrop, T-Mobile and Deutsche Telekom had to 
make some difficult decisions. Remaining a competitive force in 
the U.S. wireless marketplace was going to require a very 
significant additional capital investment, both in spectrum and 
in infrastructure. However, it has become increasingly apparent 
that the prospect of additional spectrum becoming available for 
acquisition is uncertain at best. Even if available, such an 
acquisition would force Deutsche Telekom to reallocate funds 
from our core European operations into T-Mobile USA, which 
would be very difficult for us given our overall group debt 
situation and our high capital investment needs in Europe.
    This transaction resolves these issues in a manner that 
delivers more value with substantially less execution risks 
both to Deutsche Telekom and to T-Mobile's customers than any 
other alternative which is theoretically available to us. It 
allows DT to advance its international business strategy while 
making available the necessary resources to modernize and 
upgrade our core businesses in Europe. And as a significant 
shareholder of AT&T after the transaction, this transaction 
will also mean that Deutsche Telekom maintains an interest in 
and can continue to contribute to the rapidly growing and 
highly competitive United States wireless business.
    At the same time, the transaction will mean significant 
benefits for our U.S. T-Mobile customers, and let me highlight 
just a few of these benefits.
    First, T-Mobile customers will enjoy substantial 
improvements in their coverage through access to AT&T's low-
band 850 megahertz spectrum. In particular, this will mean 
significantly improved deep in-building and rural coverage.
    Second, the transaction will result in near-term network 
quality improvements for T-Mobile customers. Merging the 
companies' complementary networks and polling their spectrum 
will very quickly lead to significant operating efficiencies 
which will mean better coverage, fewer dropped and blocked 
calls, and faster and more consistent data downloads, 
particularly at peak times and in high-demand locations.
    Third, the transaction will further give the combined 
company the resources and spectrum it needs to broadly deploy 
next generation 4G-LTE service to more than 97 percent of 
Americans. T-Mobile on its own simply did not have the spectrum 
to roll out its own competitive nationwide LTE network.
    And fourth, the transaction will allow the combined company 
to increase capacity and to reduce costs significantly which 
will drive prices down and enhance opportunities for 
innovation, making the U.S. an even more competitive and 
innovative marketplace. As I have already described, the U.S. 
wireless marketplace is extremely dynamic and competitive today 
and it will become even more so with the capacity growth and 
cost savings which are made possible by this transaction.
    To conclude, Deutsche Telekom sale of T-Mobile USA to AT&T 
is a true win-win solution. It not only advances Deutsche 
Telekom's business strategy but also directly addresses T-
Mobile USA's strategic challenges and delivers significant 
benefits to T-Mobile customers and the wireless competition in 
general.
    Thank you for your time. I welcome the questions.
    [The prepared statement of Mr. Obermann follows:]

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    Mr. Goodlatte. Thank you, Mr. Obermann.
    Mr. Berry, welcome.

TESTIMONY OF STEVEN K. BERRY, PRESIDENT AND CEO, RURAL CELLULAR 
                          ASSOCIATION

    Mr. Berry. Good morning, Chairman Goodlatte, Ranking Member 
Watt, Chairman Smith, and Ranking Member Conyers. Thank you for 
the opportunity to testify today.
    The AT&T takeover of T-Mobile is a game-changer. This 
anticompetitive shock wave will reverberate through the entire 
wireless industry. If approved, this merger virtually 
guarantees a wireless duopoly. It harms competitive carriers 
and consumers. It frustrates the goal of mobile broadband 
deployment across our Nation and will require re-regulation of 
the wireless industry.
    RCA represents competitive carriers, rural, regional, 
urban, and suburban carriers, all across the Nation. Today I 
testify on behalf of nearly 100 carrier members and 145 vendor/
supplier members of RCA, many of which are small businesses who 
compete for customers with robust service offerings, own and 
build their own wireless networks, and remain involved in their 
local communities. The David versus Goliath competition against 
the largest national carriers is nothing new, but if this 
proposed takeover is approved, it will be a bridge too far. The 
advantages of size, scale, vertical integration in the wireless 
value chain will overwhelm our Nation's local competitive 
carriers.
    Let me offer five specific reasons why this transaction 
should not happen.
    It eliminates meaningful competition. This takeover would 
consolidate the industry to the extreme: two large carriers, 
AT&T and Verizon, who control almost 80 percent of the market. 
Such consolidation would leave these consumers at the mercy of 
a duopoly, and history tells us the results. Customers, 
consumers will face price increases, reduced innovation, and 
fewer choices.
    It disrupts data roaming. Voice roaming and now data 
roaming are fundamental building blocks of our Nation's 
wireless networks. ``Roaming'' is just another word for 
``national mobility.'' Without it, some customers will not have 
service. Ask yourself which of your constituents would want to 
buy a phone that only works in your congressional district. 
That is why wireless is a national market.
    AT&T operates a digital technology called GSM and is 
proposing to buy the only other national GSM provider, T-
Mobile. Therefore, if this deal is approved, small GSM 
providers face an AT&T roaming monopoly immediately. If you use 
the other technology, CDMA technology, you have only two 
roaming choices, Verizon Wireless or Sprint Nextel. If this 
deal is approved, how long before Verizon attempts to buy 
Sprint Nextel? This does not look or sound like a competitive 
marketplace for the future.
    Three, it limits innovation technology and 
interoperability. Just as all consumers want service 
nationwide, they also want new, innovative devices. Imagine the 
market power when two big companies control 80 percent of the 
wireless market. Will any of the smaller wireless carriers who 
serve rural towns across our Nation have a fair shot at getting 
these new, latest devices? Well, I think not. Apple will tell 
you that the iPhone is not exclusive, but yet only AT&T and 
Verizon offer the iPhone after 4 years.
    Number four, it concentrates spectrum. This takeover will 
concentrate spectrum in the hands of AT&T and will do nothing 
in itself to bring 4G broadband services to rural America. T-
Mobile owns few licenses in rural markets. AT&T already holds 
the prime low-band spectrum needed to serve rural areas. Today 
without this deal, AT&T could build out the low-band spectrum 
it already owns and commit to support ubiquitous data roaming 
and harmonization across the 700 megahertz band, and that would 
help rural America. Bringing wireless broadband to rural 
America should not be held hostage in an attempt to win 
regulatory favor for this anticompetitive deal.
    And finally, eliminating competition means additional 
regulation. Today's light touch regulatory regime is founded on 
the presence of vigorous competition. Turn competition into a 
duopoly and Congress and the FCC will have to reevaluate this 
light tough regulatory regime. The FCC will seek to increase 
regulatory involvement to artificially maintain the benefits 
competition should bring to your constituents.
    Please recognize this proposed takeover for what it is: a 
horizontal merger. It entirely eliminates a national competitor 
and it threatens the ability of all other carriers to provide 
competitive services. This takeover cannot be conditioned into 
acceptance and must be stopped.
    And I welcome any questions that you may have. Thank you.
    [The prepared statement of Mr. Berry follows:]

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    Mr. Goodlatte. Thank you, Mr. Berry.
    Ms. Desai, welcome.

                 TESTIMONY OF PARUL P. DESAI, 
                POLICY COUNSEL, CONSUMERS UNION

    Ms. Desai. Thank you, Chairman Goodlatte, Ranking Member 
Watt, and Members of Congress for this forum and for this 
opportunity to talk a little bit about how this transaction 
will affect consumers.
    For 75 years, Consumers Union has been working to ensure 
that consumers do have access to a fair marketplace for all 
consumers. However, we do have great concerns about the 
negative effect that this will have on consumers and in the 
fair marketplace, especially the effect that it will have on 
meaningful choice, consumers' pocketbooks, quality service, and 
access to innovative products.
    My written testimony goes into detail on all those factors, 
but for the remainder of my 5 minutes, I will focus on two main 
issues: prices and choice.
    Mobile devices and mobile broadband are becoming integral 
in people's lives. Mobile broadband is especially a critical 
entry point and sometimes the only entry point to the Internet 
for many communities such as rural communities, communities of 
color, and low-income communities. The last thing consumers 
need right now is a takeover that will result in higher prices 
for consumers, many of whom are already struggling in a very 
tight economy. Our magazine, Consumer Reports, has compared the 
plans between AT&T and T-Mobile and for comparable plans, our 
magazine has found that T-Mobile offers up to $15 to $50 a 
month plans that are cheaper than AT&T's. For most Americans 
these days, $15 to $50 a month can go a long way. $15 can be a 
child's school lunch for a week. $50 could be the price of 
filling up a tank of gas.
    It is inevitable that T-Mobile customers who are already 
paying lower prices than they would on AT&T's plan will see 
rate hikes, but we are also concerned about the ripple effect 
this will have on all consumers. If two companies are allowed 
to control 80 percent of the market with little to no consumer 
protections, there is very little reason to believe that these 
two companies will discipline each other when it comes to 
prices. We already see that Verizon and AT&T don't discipline 
each other when it comes to prices. So there is no reason why 
they would do so moving forward.
    So faced with higher prices, consumers will have difficult 
choices to make. Do they just forgo access to mobile broadband 
or do they pay the higher prices and continue to make even more 
sacrifices than they do now to make ends meet?
    This leads me to my second point, choice. Under this 
merger, if consumers are unhappy with the prices or the 
services that they are getting from the two big providers, 
where can they go? Well, first, the consumer would have to 
finish his or her long 2-year term wireless contract or be 
willing to pay the early termination fee to break that 
contract. Long-term contracts and ETF's discourage consumers 
from one day just taking their phone to another service 
provider.
    But even if you get over that hurdle, you have to assume 
that the consumer can get the phone that they want from a 
different carrier. We know today that more and more consumers 
are choosing their wireless provider based on the handset that 
they are able to get from a provider. However, due to exclusive 
contracts and the inability of phones to operate from one 
network to another, many carriers, especially those represented 
by Steve here today, cannot get the latest and greatest devices 
that consumers actually want. And that trend would only be 
exacerbated by the merger. With AT&T and Verizon able to 
control 80 percent of the market, more than ever they will be 
able to force handset makers, who have to rely on economies of 
scale to reach customers to succeed--they will be forced into 
exclusive deals. So if the consumer wants that latest popular 
device, she will have no choice but to stick with AT&T or 
Verizon.
    On top of this, AT&T and Verizon will have more power over 
which devices they allow on their network, what features they 
allow on these devices, or what applications are available in 
the App Store. So consumers will find themselves with limited 
choices for applications and probably face less innovative 
products.
    We have seen this story before. Back in 1982 when the FCC 
first made cell phone licenses available, it decided to award 
two licenses in each cellular market. One license was awarded 
to the local incumbent telephone company, the Bell Companies. 
The other license wasn't awarded until 9 years later, in 1991. 
By that time, the incumbent Bell Company served 80 percent of 
the population, had received half the spectrum, and had a 9-
year head start in the cellular market for most of the country. 
The Bell Companies had little incentive to develop a new 
technology that would compete with their wireline services. 
Mobile wireless developed much more quickly after the FCC made 
additional licenses available and companies without legacy 
wireline investments had entered the market.
    To me this merger is a lot like deja vu. Going back to the 
anticompetitive 1980's is not the future we should be aspiring 
to. The FCC and DOJ should not allow this merger to proceed. 
Instead, we urge Congress and regulators to focus on ways to 
foster true and healthy competition in the market so that 
consumers can benefit from fair prices in the wireless 
marketplace.
    Thank you and I look forward to any questions that you 
have.
    [The prepared statement of Ms. Desai follows:]

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    Ms. Desai. And, Mr. Chairman, if possible, I would like to 
introduce this recent antitrust analysis by Alan Grunes and 
Maurice Stucke regarding how this merger is presentably 
anticompetitive.
    Mr. Goodlatte. Without objection, it will be made a part of 
the record. Thank you, Ms. Desai.
    [The information referred to follows:]

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    Mr. Goodlatte. Professor Wright, we are pleased to hear 
your testimony.

           TESTIMONY OF JOSHUA D. WRIGHT, PROFESSOR, 
             GEORGE MASON UNIVERSITY SCHOOL OF LAW

    Mr. Wright. Chairman Goodlatte, Ranking Member Watt, 
Members of the Subcommittee, Chairman Smith and Ranking Member 
Conyers, my name is Joshua Wright. I hold a Ph.D. in economics, 
formerly an employee of the Federal Trade Commission and the 
Bureau of Competition, and am currently an antitrust law 
professor at George Mason University School of Law. I 
appreciate the opportunity to testify before you today on this 
important issue.
    My testimony focuses upon how we should think about 
evaluating the likely competitive effects of the proposed 
transaction from a consumer welfare perspective.
    I want to start by observing that there is a standard and 
well understood economic framework for analyzing horizontal 
mergers. That framework is articulated in the 2010 Horizontal 
Merger Guidelines that were recently promulgated by the DOJ and 
FTC under the Obama administration. Economists and lawyers at 
antitrust agencies apply these guidelines through highly fact-
intensive investigations. The agencies then conduct various 
quantitative and qualitative analyses with these data.
    My goal here is not to replicate or anticipate the analyses 
that those agencies will conduct, but to highlight the types of 
issues that the agencies are likely to confront along the way 
in applying that analytical framework to this merger.
    I would like to begin with what is a broad and overarching 
principle of economic analysis of merger review that has 
emerged over the past 30 years of learning in the economics 
literature.
    Modern merger analysis focuses, to the extent possible, on 
competitive effects directly and does not merely look at market 
structure to make inferences about the future effects of a 
merger. In other words, the economic theory and evidence is 
fairly clear that simply counting the number of firms in a 
market is an unreliable way to go about predicting the 
competitive effects of mergers.
    The current agency guidelines reflect this consensus view 
in industrial organization economics that merely relying on a 
crude proxy like market structure is likely to lead in errors 
in both directions with respect to antitrust review. Instead, 
modern merger analysis focuses upon two issues, the likelihood 
a merger will create an incentive to raise price relative to 
the world without the merger on the one hand and, on the other, 
whether the merger will create efficiencies that will result in 
benefits to consumers.
    On the efficiency side, as Mr. Stephenson alluded to 
earlier and as the FCC has recognized in its wireless report 
and elsewhere, capacity constraints characterize the current 
wireless competitive landscape. Wireless carriers must make 
significant investments to expand and upgrade network capacity. 
Given the practical difficulties and delays associated with 
expanding spectrum holdings through new auctions, acquisition 
of incremental spectrum through merger is desirable relative to 
delay and, importantly, through another feasible alternative 
which would be rationing existing spectrum through higher 
prices. These efficiencies from relaxing those capacity 
constraints are likely to result in benefits to consumers from 
increased usage.
    On the anticompetitive side of the evaluation are two 
possibilities that the agencies will explore. Unilateral price 
effects arise when a post-merger firm is able to, without 
coordinating with its rivals, have the power to increase price. 
Coordinated price effects, as articulated in those same 
guidelines, by contrast arise when coordinated pricing or 
collusion between firms is made more likely by a specific 
merger. Unilateral price effects do not appear likely from the 
proposed transaction. Those effects are unlikely when a merger 
allows for expansion of capacity and reduction of the marginal 
cost of expanding capacity to increase output for consumers.
    Further, a unilateral price effect is especially relevant 
when two merging firms sell products that are close 
substitutes. There is some evidence here that consumers do not 
perceive AT&T and T-Mobile USA wireless products as 
particularly close substitutes. For example, the 2010 FCC 
report emphasizes the close price competition between AT&T and 
Verizon rather than between AT&T and T-Mobile. Given the 
continued presence of Verizon and Sprint after the merger, the 
likelihood that AT&T will be able to unilaterally raise prices 
appears questionable. Similarly, given the continued presence 
of Sprint, MetroPCS, Leap, and others that cater to value-
oriented consumers that have been the focus of T-Mobile's 
business, it also appears questionable whether there would be 
unilateral effects with respect to those consumers.
    Nor does it appear that a coordinated effect, in other 
words, a price increase from coordination between rivals is 
likely. Mergers can facilitate coordinated pricing through 
eliminating of a maverick. It does not appear that T-Mobile is 
a maverick in the antitrust sense of the term. In contrast, in 
a period of growth, T-Mobile has steadily lost consumers and 
has not increased output and market share.
    It appears, in conclusion, that T-Mobile is neither a 
particularly close competitor or a maverick as would be 
required for either of the anticompetitive theories.
    I am hopeful that my testimony has highlighted some of the 
relevant issues, and I thank you for your time and allowing me 
to speak on this topic.
    [The prepared statement of Mr. Wright follows:]

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    Mr. Goodlatte. Thank you, Professor Wright.
    Professor Gavil, welcome.

           TESTIMONY OF ANDREW I. GAVIL, PROFESSOR, 
                HOWARD UNIVERSITY SCHOOL OF LAW

    Mr. Gavil. Good morning, Chairman Goodlatte, Ranking Member 
Watt, Chairman Smith, and Ranking Member Conyers. Thank you all 
for this opportunity to offer my views on the competitive 
issues posed by the proposed acquisition by AT&T of T-Mobile 
USA.
    As the Subcommittee is well aware, few industries are 
likely to be as important to our national economic, social, and 
political health in the 21st century as wireless 
telecommunications, and the proposed merger will significantly 
alter the shape of that industry.
    Will the merger enhance the competitiveness of this field, 
producing lower prices, higher quality, and robust innovation? 
Or will it increase the incentives of the merging firms and 
other firms in the industry to exploit consumers, impair 
rivals, and stunt the growth and advancement of the industry? 
These are challenging and fact-intensive questions, as my 
colleague, Professor Wright, has pointed out.
    Without access to the full range of information necessary 
to a fully informed analysis, I cannot offer you a confident, 
professional opinion today as to whether the merger will likely 
or not prove to be a violation of section 7. My goal is far 
more modest. In my brief time, I hope that I can help to 
identify some of the critical questions this Subcommittee's 
Members may want to pose in reaching your own conclusions.
    I will confess, however, that I am deeply concerned that 
the proposed merger presents very substantial risks of 
anticompetitive effects across multiple dimensions of 
competition, not merely cell phone service to consumers.
    While AT&T and T-Mobile have begun to make their case that 
consumers will realize benefits from the merger, the assertions 
are as yet not fully substantiated.
    I am also very skeptical that a negotiated settlement 
between the Government agencies and AT&T and T-Mobile that 
permits the merger to go forward with conditions could be 
effective and consistent with the Clayton and 
Telecommunications Act's commitment to competition.
    Hence, the question I am asking myself and the question I 
urge you to ask as well is why would we want to take this risk. 
Once this merger is complete, there will be no method for 
either the agencies or Congress to resurrect competition once 
it is gone.
    My remarks focus on three points: competitive effects, 
efficiencies, and that last point about the quality that we 
could expect out of a regulatory settlement.
    First, competitive effects. I would completely agree with 
the framework that Professor Wright has set out about how we go 
about analyzing mergers in a modern framework, but I think we 
disagree in the application here. And I know I am not as 
optimistic as he is about the outcome and not as certain as he 
is in the conclusions he has reached in terms of the record 
that we have before us today.
    Yes, it is true that we don't today look solely at 
concentration. But we do look at concentration. The proposed 
merger would reduce the number from four to three which, under 
the guidelines promulgated by the Government, creates a strong 
presumption that it will be anticompetitive, and if the merger 
marginalizes Sprint as a major national player, the effective 
result could be to reduce competition from four to two.
    What impact will that have on the incentives of these firms 
to compete? Will they compete aggressively post-merger?
    AT&T has urged that they face aggressive competition from 
fringe competitors in local markets and that we should analyze 
the merger based on those local markets. But they are the 
principal conduits through which all of the extraordinary 
technological advances in this industry flow. Smaller fringe 
rivals simply do not perform that gateway function and would 
not be able to compete on the same footing. So concentration 
levels remain high today and they will be even higher.
    This idea that we should analyze it on a local basis, city 
by city, can easily be seen to be a challenge if we just 
imagine some other examples. We buy major appliances and 
automobiles locally as well, but would a merger between 
Whirlpool and General Electric or a merger between General 
Motors and Chrysler be something that we would look at at a 
local level and think about fixing it through spinning off 
dealers? I think not.
    Another concern I have is not just how much of a competitor 
T-Mobile is but what kind of a competitor it is. Has it been 
especially disruptive in this industry? Has it been especially 
price-sensitive? If it has, then its loss could be a loss out 
of dimension to its apparent size.
    I am concerned about the impact the merger may have on 
innovation. As I said, many of the innovations we now enjoy are 
channeled through these two mega-portals, AT&T and Verizon. 
That will be more so in the future and they will be gatekeepers 
for innovation in the industry.
    And finally, I am concerned about exclusionary conduct. 
What will their incentives be with respect to their rivals 
because of the dependency those rivals already face in terms of 
interconnection and roaming?
    In conclusion, I would just again come back to my concern 
about a regulatory decree. I would urge the agencies who are 
reviewing this deal to reach an up or down, yes or no decision. 
I am very concerned that a judicially managed regulatory 
approach would be contrary to the spirit of the 
Telecommunications Act, indeed contrary to the reliance on 
competition that it was designed to implement. We should not go 
back to the days of regulated monopoly and Ma Bell.
    Thank you very much, and I stand ready to answer any 
questions.
    [The prepared statement of Mr. Gavil follows:]

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    Mr. Goodlatte. Thank you, Professor Gavil.
    I will begin the questioning.
    Professor Wright, I would like to follow up with a comment 
made by Professor Gavil. You discussed the horizontal nature of 
this merger, but aren't there pretty significant vertical 
implications to this as well? And my question to you is, should 
the Justice Department consider the merger's effect on 
competition in markets other than consumer wireless services 
such as the market for business-to-business agreements 
involving backhaul, roaming, or handset development?
    Mr. Wright. Thank you, and I believe the answer is, yes, 
they should and will consider those issues, again through the 
same sort of fact-intensive analysis that is articulated in the 
guidelines. I did not focus on either backhaul or roaming in my 
written testimony, but I am happy to make some remarks here and 
elaborate, if you so desire.
    With respect to backhaul, this is purely, in essence, a 
vertical issue. The merger, as a few of the witnesses have 
identified, would increase the post-merger share to 
approximately 40 percent. This is lower from an antitrust 
perspective than the level of a share that would typically give 
rise to vertical concerns.
    Now, the agency guidelines do allow the agency to consider 
and look carefully at vertical issues, but there is both a body 
of case law, economic theory, and empirical evidence on when 
those sorts of vertical concerns arise and when they don't.
    Mr. Goodlatte. Let me interrupt, since I have got a limited 
amount of time and some other questions I want to ask. We will 
submit some additional written questions. You may want to flesh 
that out more in a written response because I do want to have 
the benefit of that case law and your thoughts on that.
    Mr. Wright. I would be happy to.
    Mr. Goodlatte. Let me turn to Mr. Stephenson and follow up 
on that very issue.
    AT&T sells backhaul to most of its competitors but can 
backhaul its own calls free of charge. Backhaul is a crucial 
input for your competitors' wireless services. Couldn't AT&T 
price backhaul at rates that force competitors to raise their 
prices?
    Mr. Stephenson. We do offer backhaul in the marketplace and 
we offer it to a number of carriers represented in Mr. Berry's 
organization, in fact, all carriers across the United States. 
We are also a large purchaser of backhaul. In fact, we cover 
somewhere around 40 percent of the U.S. with our own backhaul. 
So 50-60 percent of the U.S.--we are purchasing backhaul 
ourselves from other competitors.
    And we are having little difficulty finding competitive 
alternatives for backhaul. The cable companies--you can read 
their quarterly reports--are having a lot of success in 
offering backhaul to wireless carriers. There are alternative 
providers of backhaul--CLEX we like to call them in the 
industry--who are offering backhaul services. There are 
microwave solutions. In a lot of areas, we are investing our 
own capital and building our own backhaul when it is outside of 
our wireline franchise territories. So there is extensive 
opportunity for buying backhaul. It is a very competitive 
environment.
    And I would also offer the FCC does currently have a 
proceeding open on this very issue, and they are dealing with 
this now within the FCC. And so I think there will be an open 
and full hearing of that issue as well.
    Mr. Goodlatte. Thank you.
    Mr. Berry, did you want to comment on that as well?
    Mr. Berry. Yes, Mr. Chairman. I would just suggest that 
around 30 percent of the cost of running a cellular operating 
cost is getting that signal back to the main trunk, the 
backhaul. AT&T and Verizon own over 90 percent of the backhaul 
capacity in the United States and last year made over $8 
billion on that service. 93 percent of the profit came from 
people other than AT&T and Verizon on backhaul. So I think the 
vertical integration and the potential impact that it has, 
especially on my smaller members, is huge.
    And you are right. We do have backhaul with AT&T, and AT&T 
does, in some instances, use our members that also have 
backhaul. But overall, it is a huge problem and it will be a 
place where AT&T will be able to use their market power.
    Mr. Goodlatte. Thank you.
    Mr. Obermann, I am going to allow you to respond to that, 
but I want to ask you another question and we will just put it 
all out there and you can respond.
    You testify that T-Mobile has had an increasingly difficult 
time competing, arguing that the merger was the best option 
available for T-Mobile, but in January you told investors, 
quote, we have the best 4G network in the U.S. We have a 
sufficient spectrum position medium term. We have a variety of 
attractive smart phones on our shelves, including the largest 
lineup of android smart phones. You also described T-Mobile's 
spectrum position as, quote, better than most of our 
competitors.
    Is T-Mobile today a viable competitor in the U.S. market or 
is it not?
    Mr. Obermann. Well, both are true. I said that on the long 
term or longer term, we are lacking the spectrum----
    Mr. Goodlatte. You might want to pull the microphone a 
little closer to you.
    Mr. Obermann. So on the longer term, we are lacking the 
spectrum to upgrade our technology to LTE. That is the new 
technology for fourth generation networks, and LTE is the 
superior technology over time. But as of today, we are trying 
to make the best out of our existing HSPA+ technology out of 
our network, and so we are trying to compete by aggressively 
marketing that facility. But currently the facts are that--and 
the Q1 numbers demonstrate that--we are losing customers still. 
We have lost 470,000 customers roughly, while Sprint, for 
instance, gained 1.1 million, Metro and Leap--they all gained 
customers and we lost customers. So the current position we are 
in is not easy. It is actually difficult. Yet, we are trying 
our best, of course, to market what we have with more success.
    Mr. Goodlatte. Thank you.
    The gentleman from North Carolina, Mr. Watt, is recognized.
    Mr. Watt. Thank you, Mr. Chairman.
    Mr. Obermann, I guess that raises the question in my mind. 
I guess T-Mobile really wants out of the United States market 
one way or another I take it. So what is the alternative if 
this merger is not approved?
    Mr. Obermann. I am not sure I understood the question 
correctly. Was your question why we would stay as a shareholder 
in AT&T?
    Mr. Watt. No. I take it that given the economic situation 
of T-Mobile--I mean, it sounded to me like from your testimony 
your preferred market is the Europe market, and you want out of 
the U.S. market. So you are going to divest T-Mobile in the 
United States to somebody, AT&T or somebody else, because you 
want out of the market. Am I misreading what you said or just 
misunderstanding what you said?
    Mr. Obermann. I think it is fair to say that we are 
fighting both in Europe and in the U.S. with big capital 
investment needs because also in Europe we need to upgrade our 
networks, wireline and wireless networks, which costs huge 
amounts of money, and also in the U.S., we would have to 
continuously build out the network and acquire new spectrum. So 
really the fundamental strategic problem we are facing here is 
the longer-term perspective, the lack of enough spectrum to 
build our LTE network.
    The reason why we have chosen this combination with AT&T, 
after having analyzed the other theoretical options available, 
is that it is the most----
    Mr. Watt. I think you answered that question. I asked a 
different question. My purpose is not to make you bear your 
financial situation here in this room. I don't think that is 
appropriate. So I won't pursue that line of questioning.
    The real question I have--and I always hate to raise it 
because it sounds self-serving. In my congressional district, 
we have strong competition, wireless, all kinds of options 
because I represent particularly urban areas. But the older I 
have gotten, the more time I have spent in the mountains of 
North Carolina. When I go up there, there is no service.
    So I understand, Mr. Stephenson, that AT&T already has a 
minimum of 21 megahertz and in some areas of the North Carolina 
mountains 40 megahertz of unused spectrum in the North Carolina 
mountains. Why would you not build that out now in the absence 
of this merger? And what is the likelihood that you will do 
that even if the merger is approved? I guess you all keep 
telling me that you got 97 percent coverage and all of this, 
but folks in the North Carolina mountains can't even get mobile 
service. In a lot of the parts of the North Carolina mountains, 
there is just no mobile service. There is no competition.
    Mr. Stephenson. Yes, sir, I think I understand your 
question. I will tell you one of the biggest dilemmas, issues 
that I face as a CEO--I have been dealing with this for quite 
some time--is what to do about rural America. And rural America 
is a difficult equation for us, particularly getting broadband 
to rural America.
    Mr. Watt. I am just talking about basic cell phone service. 
I am not even talking about broadband. I guess broadband would 
follow but I am talking about basic cell phone service in parts 
of the country that seem to me to need it.
    Mr. Stephenson. Yes. So cellular service is going to follow 
the same equation as fixed line service. It is just more 
difficult and costly to get to rural America. It is going to 
take more time.
    The elegance of what we are proposing here is it is going 
to give us an opportunity to use wireless technology to get 
high-speed and basic wireless services to rural America. That 
is the commitment with this deal. We do have scale now. We 
would have spectrum position that would allow us to cover 55 
million more people in rural and small-town America with these 
capabilities, and that is the commitment we are making with 
this merger. It does provide the right incentives for us to 
begin to build out rural and small-town America with these 
wireless services, particularly broadband.
    Ms. Desai. Can I comment very quickly on that?
    Mr. Watt. Go ahead.
    Ms. Desai. I just wanted to point out that Mr. Obermann 
earlier stated that the lower band frequency that T-Mobile 
would get after acquiring AT&T would provide rural coverage. So 
it is not clear that AT&T is actually getting something from T-
Mobile. Mr. Obermann just said earlier that they would be 
acquiring lower band coverage that helps in rural areas.
    Mr. Watt. Anybody else got any--Mr. Berry, maybe you can 
help me. You are from rural America here.
    Mr. Berry. Yes, sir. We have one carrier in your 
congressional district, Alltel, and we have five of my member 
carriers in North Carolina. And it is very difficult----
    Mr. Watt. In the mountains of North Carolina, you got five 
carriers?
    Mr. Berry. Yes, sir. Not in your district. In your district 
we have----
    Mr. Watt. This is not about my district really. It is about 
North Carolina in general, the rural areas of North Carolina.
    Mr. Berry. Correct. And many of our members focus, like you 
say, on building out that rural area. It is very difficult in 
rural America, especially in the Smoky Mountains down there and 
the difficult terrain of North Carolina. But my members are 
committed to building out in the areas and the communities 
which they serve and live and occupy, and that has been very 
difficult. And we will certainly talk to you more about how we 
can improve the coverage.
    But you are absolutely right. There are unused spectrum 
allotments in North Carolina, particularly that AT&T owns, that 
have not been built out.
    Mr. Stephenson. Could I respond to that, Ranking Member?
    Mr. Watt. Yes, sir.
    Mr. Stephenson. The unused spectrum, if I could clarify 
this. We have acquired a large amount of spectrum in several 
geographies around the United States. It is the 700 megahertz 
spectrum. The Government auctioned it off. We acquired that for 
one very specific purpose. That is where we are building these 
LTE broadband networks. It requires a big block of spectrum to 
build these broadband networks, 20 contiguous megahertz just to 
build these networks. And so we have acquired that spectrum, 
and that is where we are deploying it now. In fact, we 
announced that we will be launching five markets midyear this 
year in that spectrum. So it will take time to build these 
networks out, undoubtedly. But that is why we are holding that 
spectrum.
    Mr. Watt. I guess somebody--who was it that said how long. 
Not long. I have been hearing that for a number of years now, 
and I keep asking. I won't go there.
    Mr. Chairman, I ask unanimous consent to submit for the 
record the testimony of Larry Cohen, President of the 
Communications Workers of America, and the written statement of 
Daniel R. Hesse, Chief Executive Officer, Spring/Nextel 
Corporation so that we will have a complete record here.
    Mr. Goodlatte. Without objection, they will be made a part 
of the record.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Watt. I yield back, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman.
    The Chair recognizes the Vice-Chairman of the Committee, 
the gentleman from Arizona, Mr. Quayle, for 5 minutes.
    Mr. Quayle. Thank you, Mr. Chairman.
    Mr. Stephenson, there are a lot of companies here that are 
U.S.-based but they have a lot of operations overseas and in 
Europe and in Asia, and a lot of times they are required to get 
a phone that is on a GSM network. Now, if the merger goes 
through between AT&T and T-Mobile, will there be a competitive 
alternative for these types of companies and individuals who 
require a plan that is on the GSM network?
    Mr. Stephenson. So today if you are in Europe--pick an 
example--and you have a 3G device and you want to roam in the 
United States, there are very few phones in Europe that roam on 
the other GSM provider, which is T-Mobile. In fact, I might 
surmise that my friend Rene here is roaming on my network 
today, on the 3G network, for that very reason. This 
transaction does not change that one iota.
    The importance to understand in the roaming world is the 
pricing discipline comes by virtue of we trade traffic. So if 
Rene needs for his customers to roam in the United States, I 
need my customers to roam in Europe, we exchange traffic, and 
then we set rates based on exchanges of traffic. That is the 
pricing discipline.
    I will tell you I am aware of no situation around the globe 
where we have roaming arrangements where AT&T is paying less 
than the carrier who is bringing traffic to the United States. 
So the pricing discipline comes by virtue of those exchanges of 
traffic.
    Mr. Quayle. Okay, thank you.
    Mr. Berry, in your testimony, you talked about how the 
consolidation within the wireless market has led to higher 
prices. Anecdotally I just have to dispute that because I just 
don't know where you are getting--basing that on factual 
information because looking at my own wireless bill in the last 
few years, the prices have come down and the services have gone 
up. So where are you basing that assertion on?
    Mr. Berry. I said that prices would go up through 
consolidation.
    Mr. Quayle. Well, in your statement, you actually pointed 
to the fact that--in your written statement that the 
consolidation that has occurred over the last 5 years has 
actually increased prices. And I just want to know where you 
base that on.
    Mr. Berry. Well, two factors. For example, you were talking 
about international. The United States prices are actually a 
little higher than they are in the international arena. We have 
had a lot of cost decreases because of technology. The 
correlation is not always cause and effect. I think what you 
are seeing is higher bills because of greater data usage and 
greater utilization from U.S. consumers. So your basic bill may 
go up.
    Mr. Quayle. But that doesn't mean the consolidation has 
actually----
    Mr. Berry. The data----
    Mr. Quayle. Sorry to interrupt, but that doesn't mean that 
the consolidation has actually led to higher prices based on 
what you are actually receiving. You are actually receiving 
more for less. So that is all I was trying to figure out what 
that actual statement was based upon.
    Professor Gavil, you stated in your testimony that if this 
merger does go through, Congress may not have the ability to 
bring back competition within the wireless sphere. But wouldn't 
the marketplace be able to take care of that? Wouldn't the 
marketplace be able to bring back that competition if you have 
a situation where a company is gouging pricing? And one of the 
things that we have been seeing right now is T-Mobile has the 
low-cost provider. Now, doesn't that, first of all, give Sprint 
the ability to actually take up market share, take over 
customers who are looking for that low cost? And also doesn't 
that also give cable companies who have talked about getting in 
the wireless sphere, various Internet companies have also--if 
they see that there is the ability to go in and to have the 
capital to actually provide a service to those who feel that 
they are going to be under-provided and allowing the 
marketplace to bring back competition?
    Mr. Gavil. I think it is an important question, 
Congressman. And the answer has to do with barriers to entry 
that already exist in the industry. This is not an easy 
industry to get into. So even if the prices were higher--and in 
fact, if you think about it, the incentive to raise price is 
affected by those companies' estimation of whether they are 
likely to see new entry, new competition. It is not easy to 
acquire spectrum. It is not easy, as we have been hearing, to 
build out. It is not easy to produce 4G LTE systems.
    So if you are looking at all of those factors, in theory, 
yes, you would hope that if prices go up, there would be 
interest from others in entering the market and bringing new 
competition. But the merger itself may make entry more 
difficult, as we have been talking about, these issues about 
interconnection and roaming. That would be a way a smaller 
carrier would want to enter the market, and yet they would be 
subject to having to engage in agreements with Verizon and AT&T 
even to get into the market, and they would probably be at a 
price disadvantage because of that.
    So in theory, yes, but one of the things that is troubling 
about this market is the issue of entry barriers, and the 
merger will probably make those entry barriers even more 
difficult.
    Mr. Quayle. But if a company that is currently not in the 
marketplace but does have the sufficient amount of capital to 
be able to enter and provide direct competition because they 
see that there is an area of this market that isn't being 
serviced and they can actually make a profit, even though the 
initial capital outlay will be substantial because, like you 
talked about, the barriers to entry, wouldn't you see that as a 
way for the market to just govern itself?
    Mr. Gavil. Yes, and in fact, under the Horizontal Merger 
Guidelines the Government uses, you look at the likelihood of 
entry and you ask whether it would be timely, whether it would 
be likely, and whether it would be sufficient to counteract any 
incentive to raise price. So that would most certainly be a 
part of the analysis.
    Mr. Quayle. Okay. Thank you very much.
    I yield back.
    Mr. Goodlatte. I thank the gentleman.
    The gentleman from Michigan, Mr. Conyers, is recognized.
    Mr. Conyers. Thank you, Chairman.
    You know, during the Clinton administration, outside of 
Microsoft, the Department of Justice antitrust was pretty 
dormant. During the Bush administration, the door was shut and 
we don't know if they were asleep or awake. It didn't make much 
difference. And under Obama, I can count on one hand the number 
of mergers that have been blocked, very few. Oh, yes, they put 
on conditions. That is the last anybody ever hears about the 
conditions.
    Now, normally at antitrust hearings, we get the promises 
that there won't be losses of jobs. We won't raise the rates. 
The thing I like about these witnesses is they don't even 
promise that, and so I thank you for your evasiveness on this 
issue. Then I don't have to come back next year and say they 
promised us they wouldn't cut any jobs.
    So I am concerned. I see absolutely no redeeming reason for 
this merger to go through, not even one. T-Mobile is probably 
broke. I am glad Mel Watt doesn't want to reveal their 
finances. They are pretty desperate.
    And we never ever do anything--the reason that the 
mountains of North Carolina don't have any services is it is 
not profitable. What is so hard to figure out about that? You 
don't make any money. You make $29 billion a year, but you 
don't make any money up in the country or in the rural areas or 
in small towns or in the mountains. That is why you don't give 
them any service. And so what makes me think that T-Mobile 
joining you is going to make that any different?
    Mr. Stephenson. May I respond to that?
    Mr. Conyers. Sure.
    Mr. Stephenson. I would not argue with you that the profit 
motive does not drive us to invest in a lot of rural America. 
It has been that way in this industry for quite some time. The 
Universal Service Fund was, in fact, developed for exactly that 
reason.
    What I believe this transaction affords is there does 
become a profit incentive for us to build out 97 percent of the 
U.S. with this mobile capability and mobile broadband. The 
significance of that is we are no longer looking for Universal 
Service funding and Government funding to cover all of rural 
America. There is 3 percent remaining. We get to 97 percent 
with this transaction. There is 3 percent remaining for the 
Universal Service Fund. That is a manageable approach in 
getting rural coverage.
    Mr. Conyers. Let me ask the professor from Howard. What are 
your reservations about this deal?
    Mr. Gavil. I think beyond the reduction in the direct 
competition between the two firms, which I think clearly could 
result in higher prices for consumers, I am very concerned 
about what it means for the basic structure of the industry as 
a whole. As Chairman Goodlatte was asking Professor Wright 
earlier, this is not what we would traditionally call just a 
horizontal merger. The question is not just about the reduction 
of competition between two rivals. It is about them winding up 
in a situation where they are portals for lots of other firms 
with which they have vertical relationships.
    Think about all the technology that has advanced in the 
last 5 years in handsets, in operating systems, in 
applications, all of the things that we can do with our smart 
phones and our new tablet PC's and iPads. All of those things 
have come from people who now must interact and negotiate with 
a market that will be dominated by AT&T and Verizon. And we can 
count on those two companies to do what is best in their 
interest, but I don't know that we want to entrust them with 
all of the decisions about what the next technology ought to 
be.
    A competitive market can be more creative, can take some 
risks, and those kinds of creativity and risks can bring us a 
more interesting and broader variety of products, allowing 
those products to be tested through competition, not through 
the judgment of two large portals.
    Ms. Desai. To go to your comment about incentives for 
building out, Verizon has said that it will build out to about 
95 percent of the country with the spectrum holdings that it 
has now. It is hard to believe that AT&T, which has similar 
holdings as Verizon, would just give up 15 percent of the 
market and not build out to 95 percent of the country. So I 
think we all expected that even before the merger, AT&T was 
going to compete with Verizon to build out. I don't think AT&T 
would simply give up 15 percent of the market to Verizon.
    Mr. Stephenson. Would you mind if I corrected one thing? We 
do not have the same spectrum holdings as Verizon. Verizon has 
a nationwide 24 megahertz swath of 700 megahertz spectrum. We 
do not have that. Make no mistake about it. We are not on equal 
footing in terms of spectrum. We do need the spectrum that T-
Mobile holds to do a complete 97 percent build-out of the U.S.
    Ms. Desai. I would just say I am going by the recent 
Congressional Research Service note that came out a couple of 
weeks ago that stated that the two companies had similar 
holdings, maybe not the same holdings, but they do have similar 
holdings.
    Mr. Goodlatte. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Coble, for 5 minutes.
    Mr. Coble. Thank you, Mr. Chairman.
    Good to have you all with us this morning, ladies and 
gentlemen.
    Mr. Stephenson, let me revisit a question that has been 
kicked around several times this morning. How do carriers 
actually determine when to build out, expand, or upgrade 
service in small towns or rural areas, of which I have many in 
my district?
    Mr. Stephenson. Ranking Member Conyers is accurate. We are 
a market-driven company and we build out when we can deploy 
capital and earn a return on that capital. And generally, it is 
only when technology is mature and the cost curves come down 
that costs justify deploying technology into rural America. And 
that is kind of the equation.
    What is unique about this opportunity is around the globe, 
we are scaling LTE fourth generation mobile broadband. These 
cost curves are already coming down very, very quickly. And so 
if you put two things together, first of all, a spectrum 
position that will allow us to build into rural America and, 
second of all, a larger customer base against which you 
leverage that investment--we gain another 30 million 
subscribers with T-Mobile--it changes the economics. And that 
is why this basically affords a private market solution to 
cover rural America. That is one of the most exciting things 
about this. I have been looking for 5 years for a broadband 
solution to get to rural America cost effectively. I have not 
been able to find one. This is the first instance where we have 
a good, solid economic justification for getting to rural 
America.
    Mr. Coble. I thank you, sir.
    Mr. Obermann, I am told that T-Mobile invested in 
infrastructure build-outs in Europe but elected not to do so in 
the United States. If this is accurate, why in Europe and not 
in the U.S.?
    Mr. Obermann. With due respect, sir, that is not the fact. 
That is not the case. We invested continuously between $2 
billion and $3 billion, roughly, per year over the last years 
and even in some years beyond $3 billion. So we keep investing 
into this market, but the fact of the matter is we haven't yet 
been able to acquire spectrum, radio spectrum, which gives us 
the opportunity to build the next generation networks, and this 
combination gives us and our customers the chance to get the 
benefits of the next generation technology and it frees up 
capacity. Neither AT&T nor us would have been able to build LTE 
to 97 percent of American customers.
    Mr. Coble. Thank you, sir.
    Let me hear from Mr. Stephenson and Mr. Berry on this 
question.
    I am told that AT&T intends to offer roaming agreements to 
all rural providers. Are there any limitations to this offer? 
And do these agreements also apply to data services? Why don't 
we start with you, Mr. Stephenson, and then I will hear from 
Mr. Berry.
    Mr. Stephenson. I would tell you we are open for business 
for folks to roam on our networks, both 3G data as well as 
voice. I envision in the LTE environment, we will do roaming 
deals, and I would be glad to do roaming deals. The FCC, about 
a month ago, issued an order requiring companies to negotiate 
roaming deals at reasonable commercial terms. Before that order 
came out, we had a number of roaming agreements. Since that 
order came out, we have signed seven new roaming agreements on 
our 3G networks. So to answer your question directly, yes, we 
are open for business. It is actually a good business 
proposition for us.
    Mr. Coble. Thank you, sir.
    Mr. Berry?
    Mr. Berry. Yes, Chairman Coble.
    We are very glad to see the FCC order on data roaming. As a 
matter of fact, until the FCC began its NPRM and its process of 
directing a data roaming mandate, we were unable to obtain 
those type of agreements and especially in rural America.
    For the LTE solution that Mr. Stephenson has just talked 
about, there is another problem and that is that AT&T has 
created its own private band plan within the lower 700 
megahertz. Most of my members own band 12. Band 17 is a subset 
of that. If AT&T were to join with us and create interoperable 
standards for that band, we would join with them immediately 
and build out LTE throughout the rural area in the United 
States. We can't get access to handsets and devices and we 
can't--as you said, you have to make money in your build-out. 
We would like and we welcome the opportunity to join in roaming 
agreements.
    But Verizon has already appealed that agreement of the FCC, 
and so it is on appeal. And we have yet to see whether or not 
that is actually going to make a difference. And we encourage 
every one of our members to continue to monitor that and try to 
enter into agreements with AT&T.
    If you are a GSM provider, there are no other options. It 
is either roam with AT&T, if this deal goes through, or no one 
else. And right now, T-Mobile is the value partner for those 
roaming agreements. Once this deal goes through, there will 
only be one choice.
    Mr. Coble. Mr. Obermann, did you want to be heard?
    Mr. Obermann. Sir, first of all, I just confirmed the 
number with my colleague. It was well beyond $30 billion which 
we have invested over the last 10 years into this market.
    Second, to the point of roaming, I cannot see a reason--but 
maybe Mr. Stephenson should confirm that--why the existing 
roaming contracts with regional carriers--and there are quite 
many--would not be continued after the merger.
    Mr. Coble. I thank you, sir.
    Mr. Chairman, I see my red light has illuminated. I yield 
back.
    Mr. Goodlatte. I thank the gentleman.
    The gentleman from Florida, Mr. Deutch, is recognized for 5 
minutes.
    Mr. Deutch. Thank you, Mr. Chairman.
    I would like to bring up something that was raised in the 
testimony submitted for the record by the Communications 
Workers of America. There has been an awful lot of complex 
analysis of these issues, and I appreciated CWA's succinct 
statement of their position. Their President, Larry Cohen, said 
that they have studied the transaction carefully. They reached 
the following conclusion, that the acquisition of T-Mobile by 
AT&T will be good for broadband deployment, good for consumers, 
good for jobs, good for workers rights, and good for rural 
citizens. I would like to get into some of those issues since 
there seems to be some difference of opinion, but he was quite 
clear.
    I, importantly, would like to focus on the effect of 
mergers on U.S. workers. Workers have borne the brunt of this 
recession, and it is especially relevant in my State of Florida 
where unemployment continues to exceed 10 percent. So when I 
hear about a proposal of this magnitude, my first inclination 
is to look at what it will do for jobs and for workers, as 
Ranking Member Conyers brought up earlier.
    I understand from Mr. Cohen's testimony, AT&T is the 
Nation's only union wireless company with 43,000 union workers. 
I trust, Mr. Stephenson, you would agree that that is a good 
thing for the company and for the employees at the company.
    But returning to the question at hand, I would like to hear 
from the panel about how specifically the proposed merger will 
affect jobs. Are we looking at a net job loss because of 
redundancies between T-Mobile and AT&T? Or would there be new 
jobs created if the Department of Justice ultimately approves 
the merger?
    I will start, Mr. Stephenson, with your views on that. Is 
there reason to think that this will have an affect on jobs 
overall?
    Mr. Stephenson. As it relates to what it does to 
specifically union jobs, I can go back and tell you what has 
happened historically. When we combined Cingular with AT&T 
Wireless, we had the same situation. Since we put those two 
companies together, the number of union jobs have doubled in 
our company. What is driving that?
    In our industry, but certainly no different than any other 
industry, but you only are hiring where you are investing. In 
our business, if you are not investing, you are not hiring. You 
can look at our plain old telephone service business. We are 
not investing over there anymore, and you know what is 
happening to employment. Employment is decreasing. In wireless, 
we are investing. We are investing aggressively, and so 
employment continues to grow in our wireless businesses.
    This transaction, when consummated, to build out the LTE 
footprint, this broadband footprint we are talking about, and 
to do all the integration required will entail $8 billion of 
investment over a 3-year period of time. Again, in our 
industry, investment means hiring.
    This is why the CWA and the unions across America--all 
major unions have endorsed this deal because there will be 
hiring associated with that investment.
    Now, I don't want to mislead anybody. You put two companies 
together like this, there are redundancies. We will not need 
two finance organizations, for example. We will not require two 
marketing organizations. And so we will have to address areas 
where we have redundancies. We have a long history, in terms of 
how we address those.
    In fact, Larry Cohen of the CWA and I directly negotiated 5 
years ago a concept we call JOG. It is called the Job Offer 
Guarantee. And the way we manage these surplus situations is we 
offer each employee a job within a certain geographic area. And 
it has allowed us over the last few years to very effectively 
move employees out of declining businesses into growth 
businesses. It is very elegant. It doesn't happen real quickly, 
but we do get there. Using that and attrition, we believe we 
can manage through this.
    Mr. Deutch. I think the Ranking Member was getting at this 
earlier. Ultimately, then I understand there will be an 
increase in union jobs. Is there anyone on the panel that can 
tell us or give their forecast on what this will mean to jobs 
overall? Will there be a net increase? Can we estimate what 
that net increase might be? What will we see? How will this 
affect the labor market?
    Mr. Stephenson. I have not been able to do a detailed 
analysis literally of this organization. Traditionally what you 
will see is through attrition, there will be a short-term 
reduction in jobs through attrition and through the process we 
discussed. But both of us have a large labor force that has 
been outsourced, a lot of them out of the country. Our 
commitment has always been if we have to go down in 
redundancies, we go down there first and not in the United 
States. So I think in general in the short term, there may be a 
modest reduction, but over the 2- to 3-year time horizon, this 
should be a job creator. It historically has been.
    Mr. Deutch. Mr. Obermann?
    Mr. Obermann. If you can agree to the assumption that there 
is an additional build-out enabled by this merger, then you can 
also assume that the stimulating effects on jobs are 
significant by the broadband build-out. By additional broad 
band facilities and by building out the networks, it has a very 
stimulating effect on the economy overall. That is supported by 
a number of studies which we may deliver after the meeting.
    Mr. Deutch. Thank you.
    Mr. Chairman, it would be immensely helpful I think to 
understand better the possible downturn to the reduction short-
term. Ultimately, the increase is long-term. If we could get a 
better appreciation for what that would look like, I think we 
would certainly all be better informed and it would help in 
this process.
    And I yield back.
    Ms. Desai. Can I just quickly comment on that, if that is 
okay? I would just point out that AT&T has reduced their 
workforce in 8 of the last 9 years. So it is hard to see how 
moving forward they will continue to increase that workforce.
    Mr. Stephenson. May I address that? This is a wireless 
transaction, and if you look at our wireless business over the 
same time horizon that Ms. Desai just articulated, the wireless 
workforce has been increasing steadily and in fact 
significantly. The declines have come on the side of the fixed 
line business, which those businesses are declining, and we 
have, I think, done a nice job of using attrition to manage 
those workforces down, as well as these job offer guarantees I 
discussed earlier. We have worked very hard with our labor 
union to try to migrate our workforce to the growing parts of 
the business.
    Mr. Goodlatte. I thank the gentleman.
    The Chair now recognizes the Chairman of the Government 
Oversight Committee, the gentleman from California, Mr. Issa.
    Mr. Issa. I thank you, Chairman.
    This has been very, very interesting. I guess since my 
Committee oversees the Post Office, we have lost almost 200,000 
jobs over the last decade, union jobs. Guess what. If the 
business goes away, you are going to lose those jobs.
    But I am going to take a different tact. Having been at the 
first Chicago show when cellular was rolled out and we were all 
so excited for this regional phenomenon that might catch on and 
allow us not to carry suitcases as our telephones and talk to 
operators who would then connect us. As I watch this go on from 
analog to digital and so on, I have seen one thing, which is, 
first of all, the tie-in with wireline does concern me. The 
fact is we are reassembling a duopoly on the back end. And I am 
going to want to know, in this process as we look at it, that 
the protections for the remaining wireless carriers--because I 
remember when it was wireline, and it basically cut those into 
two groups, those who had wire and those who didn't initially. 
And I am going to want to be concerned for the remaining non-
wireline carriers, of which there are a very large amount with 
a very small amount--that that backhaul capability is delivered 
at a fair price.
    Having said that, I want to mostly talk to Mr. Obermann. 
You are not putting money into your business and you are losing 
market share as we speak. Right? You are not putting sufficient 
money into your business. You are a 2G and 3G sort of entity 
with no rollout of new technology. Is that roughly a fair 
statement without insulting your company?
    Mr. Obermann. No. I think that contradicts the facts to be 
honest because we have invested more than $30 billion, 
significantly more than $30 billion----
    Mr. Issa. Are you behind AT&T in technology rollout today?
    Mr. Obermann. I am sorry?
    Mr. Issa. Are you ahead or behind AT&T in technology 
rollout, high-speed data?
    Mr. Obermann. We are not on the same level in terms of 
network coverage but we cover about 280 million U.S. customers.
    Mr. Issa. So you have less coverage.
    And back to the original question. Your data speed 
enhancements, your investment in new data and in the bandwidth 
to go with it--are you ahead or behind AT&T?
    Mr. Obermann. No. As we speak today, we have a good 
performance on our HSPA+ network. We can compete well, but the 
fact is that going forward, we cannot upgrade our network to 
the next generation technology called LTE and that is faster. 
It is more efficient, and it has a couple of advantages, 
including efficiency gains.
    Mr. Issa. Okay. So cutting you off a little bit here, but 
for sales purposes, you would say you are not behind. You are 
not this and that. But your forecast is you are clearly not 
going to stay up. You are going to become the behind carrier in 
the current projection based on the capital available.
    Mr. Obermann. In the longer term, we are lacking the 
essential prerequisites to upgrade the network. Currently I 
must say that we are a little stuck in the middle because we 
are attacked by a number of value-based smaller players. There 
are, as my neighbor says, more than 100 in his association 
alone, and I think we haven't mentioned the fact that every 
market, including the markets in California, they have four or 
more facility-based carriers, almost every major market. And 
there is a lot of competition and it is not just----
    Mr. Issa. Okay.
    Mr. Obermann. We are being attacked by a number of smaller 
players.
    Mr. Issa. Right, and I have got more questions for your 
answers, if you can bear with me.
    So I am looking at a company that is being offered $39 
billion today. You are the only two major GSM players today. If 
somebody wanted to buy you that wasn't GSM-based, what would 
you be worth versus the $39 billion we are talking about here 
today?
    Mr. Obermann. I am afraid I cannot answer that question, 
sir.
    Mr. Issa. Well, I'm going to guess you are worth about half 
as much to anybody, other than the partner that is willing to 
pay.
    To me the real question here today is, is this a synergy 
that is good for the market? Is this in fact the highest and 
best value for your stockholders I think is undeniable? Does it 
allow for the bandwidth, which is probably about half your 
value maybe, plus or minus a little bit, to be used efficiently 
by a new carrier? I have got a yes to all of those.
    My real question to Mr. Stephenson is how am I going to be 
comfortable that all of these smaller players that remain--and 
I use that term not to be negative to them but percentage-
wise--that they are going to have access to get their cell 
towers efficiently delivered to you. You are not going to roam 
with them. You are not on the same standard today. But how are 
they going to be assured that they are going to get fair value 
versus you and Verizon that have competitive advantages on that 
legacy part of your system?
    Mr. Stephenson. In terms of the backhaul----
    Mr. Issa. Backhaul, exactly.
    Mr. Stephenson. As I said earlier, we are outside of our 
footprint, which is 40 percent of the U.S. roughly. We are 
having to buy this both in rural as well as urban America. And 
we are finding multiple options for buying backhaul across the 
United States. Rene would tell you the same thing. We have 
multiple options.
    By that same token, I think we do a very good job of 
offering backhaul to anybody that comes to us. It is actually a 
very good business for us. It is a very competitive business. 
The pricing discipline is in the marketplace and we are seeing 
it today. And there is, again, an FCC proceeding on this issue 
right now where this is being addressed to ensure fair and good 
price access to these facilities.
    Mr. Issa. Mr. Chairman, I hope as we continue with this 
process, we will look at that whole question of whether two 
incumbent monopolies in fact on the wired side, the backhaul 
side as we are talking about here today, are going to be looked 
at very carefully. I wasn't here when Judge Greene executed the 
breakup, but now that is reassembled, I hope that this 
Committee will look at that part of it. I have no doubt that 
this is a good deal for the synergies of the wireless, but I do 
want to make sure that I am very, very cognizant of how the 
wireless companies are treated relative to the wireline part of 
these two companies that will remain.
    Thank you, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman. The gentleman's point 
is well taken and we certainly will be following that aspect of 
this issue closely.
    The Chair now recognizes the gentlewoman from California, 
Ms. Sanchez, for 5 minutes.
    Ms. Sanchez. Thank you, Mr. Chairman. I want to thank you 
for convening the hearing today to talk about this important 
proposed merger. The wireless industry has consolidated 
previously, and yet, much like we saw when this Committee 
examined the Comcast/NBCU merger in the last Congress, this 
merger has aspects that simply did not exist in previous 
mergers.
    So I appreciate the testimony of all our witnesses here 
today.
    Wireless is increasingly becoming more and more necessary 
for people to keep up with technology and to manage their 
lives. I know that Members of Congress would be lost without 
their wireless devices.
    So I am interested in some of the information that I have 
been hearing. There are parts of me that like some of what I am 
hearing, and there are parts of me that don't like some of what 
I am hearing. So I am going to try to pose a few questions to 
get at some of the things that are niggling at the back of my 
mind.
    Mr. Obermann, I want to start with you. And maybe it is 
because this merger has made me more aware, but I have taken 
notice lately of the TV ads that T-Mobile is running on 
television. And I have seen the ads both in California and 
D.C., and they are identical television ads across the country. 
And it seems clear that T-Mobile seems to be competing 
nationally with customers across the United States who have 
similar wireless needs.
    And I am interested in knowing for the discussion on 
competition and whether competition will be thwarted because of 
the merger. I mean, would it be a fair statement to say that 
you believe that T-Mobile competes with AT&T on a nationwide 
basis and has a nationwide customer base?
    Mr. Obermann. Well, first of all, the reason why we are 
going heavy into the advertisement campaigns on network is 
because our network perception--one of the reasons for 
customers to churn--has to be improved. And we have worked very 
hard to improve our network performance and we try now to make 
the best out of it in terms of marketing.
    Do we compete nationally? In fact, I would argue that 
regional markets vary a lot, and the competitive situation in 
every market is quite different. And there are very good 
examples for that. For instance, in California--sorry--in 
Florida, you have companies like MetroPCS which are very 
strong. In fact, I believe they are either number one or two in 
Miami. You have in other markets such as Wisconsin U.S. 
Cellular being very strong, if I am not mistaken. And 
therefore, you have in different regions different strength of 
players and different propositions.
    We recently changed our approach and we are now going more 
regional with regards to promotions and campaigns because 
customers clearly make their choices locally. It is more 
important that when you live, for instance, in Ohio that your 
local player, your local service provider, has good coverage 
and good devices and good tariffs and good rate plans and so 
forth, and therefore, customers make local decisions. We are 
now, therefore, going more aggressively on the local level and 
compete more locally and recognize that fact.
    Ms. Sanchez. Maybe it was just the ads that I saw that are 
identical on both coasts of the Nation, but it sort of seems to 
poke fun at AT&T. And so it seems to me if you look at the 
promotion and the advertising, that it seems that you are in 
direct competition. And that is an important component here 
because when we are talking about two market players that 
compete against each other potentially merging, there are 
implications for how much competition remains if that were to 
happen.
    Mr. Stephenson, you spoke in your testimony a lot about the 
impact on rural customers and trying to reach more customers to 
provide coverage. My district is not a rural district. And so I 
am curious if you could please let me know what is the impact 
of this merger on urban consumers, specifically if you want to 
get more local California or the Los Angeles market to be 
specific.
    Mr. Stephenson. Los Angeles, San Francisco, and New York 
have been our greatest challenges over the last 3 or 4 years 
because of the advent of these smart phones and very 
specifically the iPhone, and the volumes that these devices are 
generating on our network has been very, very dramatic.
    We have talked about the spectrum situation, the need for 
more spectrum. The way to mitigate or to extend the utilization 
of your existing spectrum--one of the key ways is to build more 
cell sites and you get better utilization out of your existing 
system. California is a classic case where we have been 
building aggressively the number of cell sites we are trying to 
deploy.
    As you know, it is not very popular to come into LA or San 
Francisco and put up a new cell site. The permitting and the 
zoning is very, very burdensome. It can take 2 and even 3 years 
to get permits and zoning to build a cell site in those areas. 
And so it really extends the time frame to get service quality 
improved in places like those.
    The significance of this transaction is T-Mobile has a very 
significant cell site grid that we put with ours. It is the 
equivalent in both of those cities in California of 
accelerating our cell site build by 8 years the day we close 
it. So you begin to do the integration of the networks, but you 
now have a much more dense cell site grid. More cell sites 
means better service. More cell sites means fewer dropped 
calls, fewer blocked calls, and better data throughput speeds. 
So that is one of the most attractive aspects of this.
    Rene's company and mine--we operate on the exact same 
spectrum frequencies which is very advantageous, makes us go 
faster, and we use the exact same network technology which will 
make this go faster. His 2G customers that he spoke of 
earlier--literally the day we close this, we can over the air 
redirect his customers to our 2G network so that they have the 
very rich spectrum access. They can get in-building coverage 
immediately and we have access to his cell towers. So there 
should be a very quick lift in service quality.
    Ms. Sanchez. My time has expired. I have additional 
questions that deal with consumer issues that I would have 
loved to get to, but I will submit those in writing for our 
panelists and would appreciate your responses. And I will yield 
back.
    Mr. Goodlatte. I thank the gentlewoman.
    The gentleman from Indiana, Mr. Pence, is recognized for 5 
minutes.
    Mr. Pence. Thanks, Chairman. Let me begin by thanking you 
for today's hearing on the proposed merger.
    I also want to welcome this distinguished panel for what 
has been an illuminating and informative conversation.
    And I expect much of the public interest in this is 
reflective of the fact that we are growing completely dependent 
in our economy and in commerce on these terrible gadgets which 
to me should have a chain attached to them and be the size of a 
cannonball.
    I actually got my first BlackBerry, Mr. Chairman, when I 
was first elected early in 2001. They were being offered to 
Members of the freshmen class as something of an affectation. I 
got one because my chief of staff lived and worked in Indiana, 
which he still does, and I said, you mean that little gadget 
would let me talk to him at any time? And they said sure.
    As a point of history, you all might be interested to know 
that on 9/11 when my BlackBerry was working in the security 
building when nothing else was working, the congressional 
leadership, as has been documented, started to make inquiries 
about why cell phones weren't working and these BlackBerry 
things were. A week later, they were issued to every Member of 
Congress.
    So the conversation about how we continue to expand the 
availability of not only voice transmission but data 
transmission has expanded rapidly in my short tenure in the 
Congress, and the impact on this business merger relative to 
continuing to widen that to every American I think is what is 
of most interest to everyone on this Committee.
    And I am intrigued by some of the dialogue. Mr. Stephenson, 
you were just talking about the symmetry between the 2G 
technologies between AT&T and T-Mobile. Correct me if I am 
wrong, but AT&T, about 20 percent is at 2G, about two times 
that with T-Mobile. You said that the ability to immediately 
integrate a large portion of T-Mobile's customer base and begin 
to immediately provide data and information services would 
become available as opposed to looking at months or years 
before that happened.
    T-Mobile has a significant presence in the Hoosier State. 
We are grateful for that.
    I guess my questions would be, first, practical and maybe 
the two on the end of the table there that could address this 
would be--Mr. Stephenson, AT&T is committed to providing LTE 
coverage to more than 97 percent of the population. That is a 
big increase prior to this announcement. I would like you to 
speak to how that is--and you have addressed this broadly, but 
would welcome your additional comments on how this merger will 
further expand the availability of this critical technology to 
rural areas like my district and all across the State of 
Indiana.
    And secondly, since T-Mobile does have a presence in 
Indiana, we continue in Indiana, as we do around the country to 
struggle in a difficult economy. And I am struck by some of the 
other testimony about workforce reductions, which are 
understandable in a hard economy. Companies are making tough 
decisions but would like either one of you to reflect on what 
impact this may have on jobs in our area or more broadly.
    Mr. Stephenson. I will start. Rene, I will let you chime in 
where you see fit.
    The rural broadband build-out--I will go back, and I just 
want to drill down one layer deeper in terms of what is 
required to deploy these mobile broadband services. And I have 
said it earlier, but it is important to reinforce that you 
can't just go out and deploy these services on top of existing 
technology. You have to have new, unused, clear, clean spectrum 
to deploy these services, and it has to be rather large blocks, 
20 megahertz. That probably doesn't mean anything to most of 
you, but that is a big block of this spectrum. And there are a 
number of places where we have this block of spectrum, 
particularly in the lower bandwidth, 700 megahertz. In those 
areas, we are building. Places where we don't have the 700, 
there is a higher frequency band that we are using. And we 
don't have good, ubiquitous coverage of that throughout rural 
America. That is the same spectrum where T-Mobile has deployed 
their 3G technologies.
    And so the beauty and the elegance of this transaction is 
it will allow us to put these two networks together. We can 
begin to move the 3G technology out of those bands of spectrum, 
clear it out for fourth generation mobile broadband 
particularly in a lot of these rural areas. So it cleans this 
out and it gives us a spectrum position to really begin to 
ubiquitously deploy this capability.
    And I will say it again. There is a further profit-
enhancing reason for this. He has a rather large customer base 
that we can leverage also. Frankly, we can make money in rural 
America, which I think what has always been the incentive we 
have been looking for. And so there is a profit motive. It is a 
private market solution to accomplishing this objective and 
allow us to do this 97 percent coverage.
    Mr. Obermann. Just a complementary piece of information not 
related to the labor topic, but to our presence and relevance 
in Indiana. We only have 2 percent and in some markets such as 
Indianapolis a 7 percent share. Other players such as U.S. 
Cellular and Leap Cricket, as well as Rebel--and then I am not 
quite certain whether all the others. Sprint, AT&T, and 
Verizon, are there as well. It is quite a contested area. It is 
a very competitive environment there. Our market share in that 
area is fairly small.
    Mr. Stephenson. If I could add one more thing. We have a 
long history in terms of employment in the State of Indiana, 
and the State of Indiana has done a number of things in the 
past to clear roadblocks for us to deploy broadband. We have 
always made commitments on our investment, our deployment, and 
our hiring, and we have always hit those. And I think we have a 
good track record in Indiana. This is a specific case where 
Indiana will be affected exclusively by the rural build, and 
again investment in our industry means hiring. So this should 
be a net job creator for the State of Indiana specifically.
    Mr. Pence. I appreciate that very much.
    Mr. Berry?
    Mr. Berry. Yes, Congressman Pence. Thank you for the 
opportunity.
    We have six members of RCA members in your congressional 
district. And, yes, they want to roll out broadband as dearly 
as everyone else.
    I sort of dispute the contention that you need clean, 
clear, unused spectrum in order to roll out broadband. I mean, 
the first broadband 4G network was rolled out by MetroPCS with 
1.5 megahertz of spectrum. Granted, they are going to grow and 
we hope they will grow all over the Nation.
    Normally when you are adding onto your house, you don't 
normally buy the next house next door until your sunroom is 
finished. You can, through managing the network, do both. And 
that is what the small carriers are doing right now. They are 
rolling out high-speed 4G in your area right now. If we had 
interoperability and data roaming, then Randall Stephenson and 
AT&T and T-Mobile would have many partners in doing that.
    The 55 million people that you talk about--that is AT&T new 
potential users. It doesn't mean that those 55 million people 
right now don't have some coverage or broadband capability like 
other carriers.
    Mr. Pence. Well, I am someone that really believes--the 
Chairman knows--in competition, but my objective is to create 
a--support policies and practices that create a level playing 
field. I believe, Mr. Chairman--and you represent a rural area 
too--we get this technology out to rural America, medium-sized 
cities, small towns, we will show the east coast and the west 
coast a thing or two about job creation and growth.
    Mr. Goodlatte. I thank the gentleman. My rural area is on 
the east coast. [Laughter.]
    The Chair now recognizes the gentleman from New York, Mr. 
Nadler, for 5 minutes.
    Mr. Nadler. Thank you, Mr. Chairman.
    Ms. Desai, one solution you propose for AT&T to increase 
its capacity is to build more infrastructure, cell towers, for 
example. But I am sure you would agree that building 
infrastructure takes time. And let's assume that AT&T is 
correct that a combine AT&T/T-Mobile entity can use its combine 
spectrum more efficiently than the two companies can 
separately. Wouldn't we increase capacity a lot faster by 
having AT&T and T-Mobile combined than we would by waiting for 
either or both to be able to build cell towers, buy spectrum, 
et cetera?
    Ms. Desai. So I think when you try to combine the two 
networks, it is still going to take time to convert.
    Mr. Nadler. But wouldn't it be faster?
    Ms. Desai. I don't think it is clear it would be faster. If 
they invest in their network work, they have the spectrum. They 
have the assets to invest in their network now rather than 
trying to integrate T-Mobile customers into AT&T customers. I 
think that is a question----
    Mr. Nadler. Thank you.
    Mr. Stephenson, would it be faster?
    Mr. Stephenson. No, sir, it would not. In fact, your 
particular market is a specific example of where you would get 
overnight efficiencies if you combine these two networks.
    Mr. Nadler. That is what I just said. Would it be faster if 
you combined them than if you didn't?
    Mr. Stephenson. Oh, yes. If we put these two networks 
together, it is a much faster path to improve service.
    Mr. Nadler. So Ms. Desai is saying it is the same, and you 
are saying it is much faster. Okay.
    Mr. Stephenson. Much faster.
    Mr. Nadler. Ms. Desai, since 1999 the overall price of cell 
phone service has declined in inflation-adjusted terms. There 
were a lot of mergers in that period. Does this suggest that 
fewer competitors doesn't always mean higher prices?
    Ms. Desai. So I think that data relates to voice prices, 
and voice prices should go down, especially since the cost of 
providing voice service has gone down. So I think it is natural 
over 10 years for voice----
    Mr. Nadler. Natural because of better technology. It has 
nothing to do with----
    Ms. Desai. Right. It is cheaper now to deliver voice 
service. But more and more, people are now using data service, 
and we have seen that in the last almost 10 years the average 
revenue per user nationally has gone up for carriers. So we are 
seeing that revenues are going up on average. The ARPU, the 
average revenue per user, is going up. So I think if you ask 
most people in this room, they would say that their cell phone 
bills have actually gone----
    Mr. Nadler. Okay, thank you.
    Mr. Stephenson, obviously--and several other members have 
alluded to this before--a key question for the antitrust review 
is whether the analysis is done assuming one national market or 
multiple local markets. Viewed as a national market, in terms 
of 2010 revenue, combined AT&T/T-Mobile would control 44 
percent; Verizon, 35 percent; and Sprint, 16 percent. It would 
essentially be a duopoly raising serious competitive concerns 
in any traditional antitrust analysis.
    Not surprisingly in your testimony you dispute relying on a 
national market and suggest we should be looking at each 
individual market. You say that, quote, wireless competition 
occurs primarily on the local level, that there are many other 
strong competitors in the marketplace besides Sprint, Verizon, 
and AT&T, and this is consistent with your FCC filing on this 
transaction.
    In 2008, however, AT&T took a different position. As part 
of its acquisition of Centennial Communications, David 
Christopher, AT&T's Chief Marketing Officer, signed an 
affidavit to the FCC in which he very clearly argued that AT&T 
competes in a national market and that regional operators like 
Centennial were not real competitors.
    For example, he made the following statements. I am just 
going to read one out of that declaration. This is a quote. 
``AT&T makes nearly all competitive decisions in response to 
national competition. AT&T offers national plans that gives 
subscribers a consistent number of minutes of service for a 
single monthly price with no roaming charges and does not 
provide regional or local plans that vary depending on 
subscriber location.'' These statements--and there are a couple 
other statements that I don't have time to read--mirror what 
AT&T has told the FCC with respect to other transactions in the 
past.
    There is clearly a--at least apparently, I should say--if I 
am wrong, tell me so, but there is apparently a reversal in 
AT&T's position on this national versus regional market 
question between 2008 in the Centennial proceeding and now.
    One, do you agree that there is such a reversal? And two, 
to what do you attribute it?
    Mr. Stephenson. Yes, sir. We did make that assertion in 
2008, and we have done it in other time frames as well. The FCC 
and the Department of Justice have consistently and routinely 
rejected that. They have consistently and routinely said that 
these markets are local markets, that the customer's decision 
is made at the local level.
    And I would tell you over the last 3 years, there has been 
a significant change in this marketplace. When we made our 
analysis of this particular transaction, our view was that this 
local marketplace has changed. If you look at San Antonio, if 
you look at New York versus Miami, those markets are 
fundamentally different. Our key competitor in--take the 
valley, for example. Our key competitor there and in Miami are 
Leap and MetroPCS. They are the focus of our competition. You 
go to Houston, our key competitor is Verizon. You go to New 
York----
    Mr. Nadler. Excuse me. Well, wasn't that true a few years 
ago also in any local market?
    Mr. Stephenson. No. The market has fundamentally changed. 
MetroPCS and Leap are the basic examples of where this is 
changing. In fact, if you look at the last quarter, in the last 
quarter, the largest gainers in the mobile industry were those 
two providers, MetroPCS gaining 700,000 customers, Leap gaining 
in excess----
    Mr. Nadler. So, in other words, you are giving me two 
answers. You are saying, one, the market has fundamentally 
changed. And two, even before the market changed, the FCC said 
look at the local market.
    Mr. Stephenson. They consistently told us--DOJ actually 
consistently told us--these are local markets, and so that is 
where we are.
    Mr. Nadler. Okay. Thank you. My time has expired. Thank 
you.
    Mr. Goodlatte. I thank the gentleman.
    We have just a few minutes left in a series of votes. The 
series is going to go on for a long time. We have several 
Members of the Committee who still wish to ask questions. So we 
will recess the Committee. We encourage you to go out and get 
some lunch because it is going to be at least an hour, probably 
longer than that. And then we will reconvene just as soon as 
the series of votes ends. The Committee will stand in recess.
    [Whereupon, at 12:37 p.m., the Subcommittee recessed, to 
reconvene at 2:51 p.m., the same day.]
    Mr. Goodlatte. The Committee will reconvene.
    And the Chair now recognizes the gentleman from Texas, Mr. 
Poe, for 5 minutes.
    We probably could use wireless technology. [Laughter.]
    Mr. Poe. Somewhat ironic, is it not?
    Thank you, Mr. Chairman. Thank you for being here and 
coming back.
    Mr. Stephenson, I want to talk about some issues regarding 
coverage. 97 percent with the merger. 97 percent of the country 
will be covered. I want to know kind of where that 3 percent 
is.
    Here is the background. When I go down to the Texas-Mexico 
border, ranchers don't have cell service in every area. 
Recently I was in Arizona as a guest of Gabby Giffords and her 
staff, and while I was down on the Arizona border with Mexico, 
no cell service, except I was getting service from service from 
Mexico. It wasn't Mexico Bell, but it was something. And that 
was the only cell service I was getting.
    Bob Krentz. His wife Sue and many of the other ranchers in 
Arizona believe that the reason he was murdered was because 
when he was ambushed, he could not use his cell phone. And so I 
have introduced, with the support of Congresswoman Giffords, 
legislation to try to get a private/public partnership so the 
ranchers can have cell service on the border with Mexico for 
national security reasons.
    My question is, is that 3 percent going to be still on the 
border with Mexico, or is that going to be covered with this 
merger?
    Mr. Stephenson. I am sorry. I cannot tell you definitively. 
I don't know. I will have to go check it out, but we will 
respond for the record to let you know where the coverage, as 
it relates to the border, is. As I look at the maps, it tends 
to be in the very mountainous regions, particularly in what we 
call the ``square States,'' so the Montanas and Idahos. There 
are some areas in there that, just quite frankly, it is very 
difficult to cover. But I will have to get back to you on the 
border States.
    What I would suggest, Congressman, is irrespective, that 3 
percent still has to be a goal of ours. I don't think we as a 
country should give up on that 3 percent. What I would offer 
and suggest is as we build these networks out and as private 
capital finances the 97 percent, then we can really turn our 
attention from a Universal Service Fund standpoint to the 3 
percent. And I reinforce that that is probably an achievable 
goal from a public policy standpoint rather than Universal 
Service funds trying to cover 20 or 15 percent.
    But I will have to get back to you to tell you exactly 
where we stand as it relates to the border areas.
    Mr. Poe. I appreciate that and I have a list of questions 
that I will also submit for the record. Send the answers back 
to the Chair, if you would.
    I think universal coverage is important, but it is 
especially important to people who live on the border because 
of the national security--their own personal security, rather, 
that they have a very strong concern about throughout those 
regions.
    Mr. Berry, did you want to weigh in on that?
    Mr. Berry. Well, I just wanted to say the 97 percent, as I 
understand it, is 97 percent of the population, not 97 percent 
of the geographic territory of the United States.
    Many of the small carriers, like the ones I represent, have 
the lower 700 megahertz band spectrum, and they have a 
geographic build-out requirement. Most of the spectrum that 
Verizon has and most of the spectrum that AT&T has has a 
population build-out requirement. So there are two different 
requirements for the same type of spectrum.
    But if you cover 97 percent of the population in the United 
States, you are probably still short around 13 to 15 percent of 
the geographic territory in the United States.
    Mr. Stephenson. Oh, no. It is much higher than that 
actually. 97 percent of the population is only 55 percent of 
the land mass. So there is 45 percent of the land mass that 
will not be covered by this build, which is 3 percent of the 
population. That is why I say I will have to get back to you.
    Mr. Poe. All right. Thank you very much for that.
    In southeast Texas that, as you know, I represent, I have 
had some concern with people that have Cricket. They think 
Cricket is going to go out of business with this merger. Weigh 
in on that. Are you going to put them out of business, Mr. 
Stephenson? They think you are. They think you are going to put 
them out of business.
    Mr. Stephenson. There is no indication of that yet. In 
fact, I would suggest to you Leap, Cricket, MetroPCS, these 
what we will call no-contract participants, have done, I 
believe, a very masterful job at penetrating the lower end of 
the marketplace with low-end price plans. And then what they 
have been doing of recent is bringing smart phones into the 
marketplace and moving up into the mid tier of our customer 
base. So, obviously, at the mid tier, there is starting to be 
some more definitive competition.
    But if you look at the last quarter results, Congressman, 
what you will see is those two companies together added a 
million subscribers. So Leap added 300,000 subscribers. 
MetroPCS, same type company, added 700,000 subscribers, as 
opposed to T-Mobile who actually shrank in the first quarter of 
this year, and Sprint adding a million subscribers. So they are 
actually the fastest growing in the industry at this point.
    Mr. Poe. I am out of time. I have some other questions I 
would submit for the record with the Chairman's consent.
    Mr. Berry. Mr. Poe, I don't want Randall Stephenson to just 
brag on my members alone. I think we ought to also indicate 
that his company was very successful in adding 1.9 million new 
customers and Verizon was 1.7 million new customers in the last 
quarter. So I think the entire industry, for the most part, is 
growing, and consumers are accepting the type of product that 
we are putting out there.
    Mr. Stephenson. No argument.
    Ms. Desai. Can I just briefly add----
    Mr. Goodlatte. Yes, Ms. Desai, you can respond as well.
    Ms. Desai. The GAO report found that the more concentrated 
the market gets, it makes it easier for the larger carriers to 
grow, but it makes it more difficult for the smaller and more 
regional carriers to grow because of barriers to entry. So the 
bigger that the companies get, it makes it more difficult for 
the smaller carriers to compete. So I think we should be 
concerned about what happens to smaller carriers.
    Mr. Poe. Thank you, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman.
    The gentlewoman from California, Ms. Lofgren, is recognized 
for 5 minutes.
    Ms. Lofgren. Thank you, Mr. Chairman. And I think this 
hearing is a helpful one. I think these are very difficult 
questions that we are facing.
    As I think about this, with this merger, we won't be 
entirely back to where we were when Judge Greene had the case, 
but we are definitely moving in that direction. When I think 
about what we accomplished with Judge Greene and the Telecom 
Act in 1996, not just in your space, but the innovation that 
was a result of that is astonishing. I remember a time when you 
could only buy your phone from Ma Bell, and now you have got 
smart phones. That innovation was because of the competition 
that happened. So not to have a competitive environment does 
concern me a tremendous amount.
    On the other hand, I listened carefully to what Mr. 
Obermann said, and it sounds like you have made the decision--
your company has made the decision you are not going to build 
out to 4G. And if you are not going to build out to 4G, you are 
not going to have a customer base.
    So my question to you, Mr. Obermann, is this. What if the 
Department of Justice says you can't do this merger? What do 
you do then?
    Mr. Obermann. The situation is that we have built out 4G 
services with our HSPA+ network. ``4G'' is a term which we can 
also claim for us----
    Ms. Lofgren. All right.
    Mr. Obermann [continuing]. Because the existing network--we 
have upgraded it to----
    Ms. Lofgren. Let me just say you have made your decision. I 
don't want to argue on who is claiming 4G that it isn't really 
4G. But you are not going to make the next level of investment 
you said.
    Mr. Obermann. No. I said that we are lacking the 
precondition to build our network from what we have today, 
which is HSPA+ to the next generation technology based on LTE, 
long-term evolution. That is a technology which will offer more 
speed, more efficiency----
    Ms. Lofgren. So you are not going to do LTE.
    Mr. Obermann. Which we cannot do given our spectrum 
position. And also, even if we had the spectrum, it would 
require significant additional investments----
    Ms. Lofgren. No. I got that. The question is if the 
Department of Justice nixes this deal with you and AT&T, what 
is your company going to do?
    Mr. Obermann. Well, we would, obviously, try to make the 
best out of what we have and try to compete. But let me be 
clear on this. This would be over the longer term. We would be 
in a very difficult situation. We would probably have to change 
our market approach completely.
    I don't think we would end up there because once the facts 
are on the table, you will see the benefits of this 
transaction, and I am sure that these benefits give good enough 
reason for this merger to be approved. So I don't think we will 
end up in that scenario. I think there are very good reasons. 
The benefits are enormous for our customers and for AT&T 
customers and for the market as a whole.
    Ms. Lofgren. You know, I was thinking that if this merger 
goes through, the obvious response is going to have to be a 
heavier regulatory load in the wireless space to try and 
preserve some competition. And then I was remembering COVAD 
which was in my district, and I remember as COVAD started as a 
DSL provider, AT&T was required to allow them access but they 
had to have more lawyers than engineers because they had to 
file lawsuit after lawsuit to enforce their rights. So I am 
wondering if the two professors have any advice for us in terms 
of how effective an increased regulatory approach through the 
FCC in the wireless space would be if this merger goes through.
    Mr. Wright. Thank you. The short answer is going to be it 
depends on the problem that you are talking about. With respect 
to, for example, roaming, there is, as I understand it, a 
regulatory framework in place with respect to those concerns. 
With respect to concerns some have raised, for example, with 
backhaul issues, although I stated in my earlier testimony that 
I do not think that those raise a particular concern here, 
given that we are not in that space----
    Ms. Lofgren. I am almost out of time. I don't want to 
appear rude, but I have got just a few seconds left.
    Professor Gavil, one concern that has been expressed is 
that with a duopoly or monopoly, you would actually have the 
ability to deter innovation outside of the space. What could 
the FCC do about that?
    Mr. Gavil. As I understand it, right now that would really 
not be directly in their realm of regulation. That is one of 
the things I am concerned about.
    I think on your first point, as I indicated at length in my 
prepared statement, I am very concerned about returning to a 
regulatory scheme that is a combination of the FCC, the 
Department of Justice, and the Federal courts. I think we tried 
to get away from that in the Telecommunications Act, and I 
think that a negotiated settlement of this deal would be a step 
backwards from the kind of competition framework that the 
Telecom Act was designed to create.
    And in terms of innovation, we are going to essentially 
have two gatekeepers that will be picking winners and losers in 
terms of technology. It will be very difficult I think in that 
setting for new handset developments, new operating system 
developments to break through into the market. There will be 
fewer choices in terms of carriers with sufficient customer 
base to attract the capital it takes to innovate on a large 
scale.
    Mr. Obermann. Congresswoman, please give me a chance to 
disagree with that. I think there is going to be enough 
competition. I just happened to find an ad where a new company 
called LightSquared is announcing that they are going to build 
out a broadband network and that this will be a nationwide 
built-out network today. There are plenty of other regional or 
large facility-based carriers such as Sprint and the regional 
ones. We don't have such a constrained competition. We have 
extensive competition in this market, and the market shares in 
the respective markets speak for themselves. There are some 
markets where U.S. Cellular or Metro or Leap or others are very 
strong players, where they are stronger than us, for instance. 
So we have intensive competition, and we create more capacity, 
which is badly needed and that will even enhance competition 
further.
    Mr. Berry. Congresswoman, if I may.
    Ms. Lofgren. It is up to the Chair. My time is up.
    Mr. Goodlatte. Mr. Berry is allowed to answer the question.
    Mr. Berry. Real quick just on that. I would like to quote 
John Stankey who is the head of AT&T Enterprise Business. Just 
2 weeks ago, he said that Clearwater and LightSquared, which 
Mr. Obermann just mentioned, would be better off consolidating 
and the best hope for the U.S. mobile wholesale market 
providers is that they should get swallowed up by a merger. 
There really isn't a profitable wholesale market in the 
wireless industry today.
    And to suggest that my regional carriers are potentially 
equal in their competitive advantage to an AT&T or Verizon is 
just not correct. We would say in Virginia that that dog won't 
hunt.
    Ms. Lofgren. Thank you, Mr. Chairman. My time has expired 
and I appreciate your indulgence in letting me go over.
    Mr. Goodlatte. I thank the gentlewoman.
    And the Chair now recognizes the gentlewoman from Texas for 
5 minutes, Ms. Jackson Lee.
    Ms. Jackson Lee. Let me thank you very much. Our Committee 
has really been consistent with our diligence in oversight over 
a number of mergers that have occurred or been proposed over 
the last 12 months to 2 years. So I thank the Chairman and the 
Ranking Member as well.
    Some of these questions have been asked and maybe asked 
again, but I would like to pose them in a way of trying to 
deliberate on solutions and to also focus on accountability.
    Let me be very clear. I frankly believe that section 7 that 
we repeat so frequently does not have the framework and the 
teeth to do what we need to do. In my conversations with some 
of those in the Justice Department who have responsibility for 
that oversight, they would admit that it is not a particularly 
piercing set of criteria that allows for what I would call 
very, very detailed and strict review. That was evident from my 
perspective, personalized view, from United Airlines and 
Continental that I still consider a questionable decision.
    But I think that we have some opportunities going forward 
in this instance to see what our solutions are. I think it is 
important to consider the driving factors in the wireless 
telecommunications industry, those offerings that drive 
consumer decisions, price, service, quality, and variety of 
devices. And we have a world of devices.
    In addition, I think it is important to note and to put on 
the record that AT&T is a union company and its union friends 
or workers are in support of this. That is an important 
statement, albeit that job decisions have to be made.
    So I am interested in, to AT&T's representative, in 
particular, what will be measures that you will be able to 
evidence that will ensure that the company's expansion 
minimizes the number of job loss particularly since T-Mobile 
has overlapping, if you will, job descriptions and positions. 
In addition, T-Mobile and others have lost less jobs than what 
AT&T has decided to do as they have merged or have been 
involved with other smaller companies. What is the measure of 
what kind of commitment, what kind of measure will you utilize 
or will you be able to present to the DOJ, to the FTC on the 
lack of job loss? Mr. Stephenson?
    Mr. Stephenson. We report to, obviously, both the 
Department of Labor and then to our external public the level 
of jobs in our company on a routine basis.
    What I would expect is if one were to look at our wireless 
business, which this is a wireless merger, that one could look 
at the employment levels in the wireless business to ascertain 
what has happened to employment. You pick the period of time, 
over whatever period of time that we evaluate this. There are 
going to be a lot of things going on.
    The primary thing going on that I think is going to be most 
important is the broadband build-out. That is an $8 billion 
investment over a several-year time horizon. And I think there 
are couple of things that we all ought to evaluate. I can tell 
you what I will be looking at. A 97.3 percent population 
coverage of broadband. Do we achieve that? The investment 
required to get there, the $8 billion--the $8 billion 
investment is what will drive the job creation, is the $8 
billion being invested? Are you achieve the coverage? Is the 
money being spent? Is the investment being put in the ground? 
Are the cell sites being constructed, et cetera, the antennas 
being erected? So can you evaluate those? Those are the metrics 
you look at to discern whether this merger is doing what you 
want it to do.
    Ms. Jackson Lee. Mr. Stephenson, you understand the inquiry 
because we have had these hearings before. Certainly I have had 
some wonderful briefings and explanations. I think it is the 
question of how serious the company will be and not going down 
the pathway. You have the opportunity for expansion. You need 
spectrum. You need broadband, and so do poor communities and 
rural communities where I think there is an intent to serve. 
Why can't we simply say we are creating jobs? We don't need to 
lose jobs. You are creating work. You are creating expanded 
work, expanded reach. Why do we have to lose jobs?
    Mr. Stephenson. Well, that is the expectation. As I said at 
the very beginning, when you do these types of transactions and 
you put the companies together, there are redundant 
responsibilities. Again, you don't need two finance departments 
and marketing departments. We have a history of how you deal 
with those redundancies, and I think we have been very 
effective at dealing with them properly and offering folks 
opportunities to move into the growth sides of the business.
    But this merger is about investment. It is about $8 billion 
in investment and broadband build-out to rural America, and so 
the jobs must go with that.
    Ms. Jackson Lee. Can I just ask Mr. Berry? What does this 
merger need to do for you to make you whole?
    Thank you, Mr. Stephenson.
    Mr. Berry. Thank you for the question.
    Ms. Jackson Lee. The ultimate possibility of a merger. How 
are you made whole?
    Mr. Berry. I don't think you can. That is why I say I do 
not think that this deal can be conditioned into approval. I 
think the basic ecosystem of not only the companies, but the 
suppliers, the vendors that support the tier 2 and 3 carriers 
will be irrevocably changed if you have this merger. There will 
be fewer partners to partner with to roam. There will be fewer 
opportunities for the smaller carriers to grow and share their 
nationwide footprint with that they need so desperately in 
order to----
    Ms. Jackson Lee. What about cost? Pricing.
    Mr. Berry. Well, I think the pricing will ultimately go up. 
I think it will go up on several ends. You have this vertical 
integration, and we talked a little about it earlier. Chairman 
Goodlatte mentioned it. You are going to have a monopoly on the 
GSM side of the backhaul. So it is not going to be multiple 
people setting a competitive price on the backhaul.
    Ms. Jackson Lee. Mr. Stephenson, can you quickly just 
answer? It is a rural area. You are talking about expanding 
broadband into the rural area. I don't want Mr. Berry to go out 
of business.
    Mr. Stephenson. There is an interesting fact here, and that 
is why Mr. Berry and his organization are opposed to this 
merger. We are going to build vast broadband to rural America. 
We will be a direct competitor to Mr. Berry and his companies 
that he represents. There will be direct, full competition. And 
I thought that is what we were about. And so we are actually 
bringing a new competitor to bear to rural America. And so I 
understand why they don't like the merger. That doesn't change 
the fact that it does enhance and bring more competition, which 
I believe is good for rural America. For the first time, 
rural----
    Mr. Goodlatte. The time of gentlewoman has expired.
    Ms. Jackson Lee. Well, let me thank them. Let me just put 
this on the record, Mr. Chairman, and then I will yield. And I 
thank you very much.
    You heard me say service, pricing are key elements besides 
the whole expansion of the service. I just want to pierce even 
more about the pricing for rural and less economically endowed 
consumers. Competition is good. I am going to keep probing that 
question.
    Thank you. I yield back.
    Mr. Goodlatte. I thank the gentlewoman.
    The Chair is now pleased to recognize the gentlewoman from 
California, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I appreciate 
this hearing and I came early and I have sat because I want 
very much to learn.
    I see the work of this Committee, particularly as it 
relates to antitrust laws and mergers, et cetera, as extremely 
important. And I believe that I and others who are elected by 
the people have a responsibility to hold regulators accountable 
to their statutory responsibilities. The FCC is supposed to 
consider the public interest and diversity, and the DOJ is 
supposed to preserve competition. And so I think that we should 
get right in the middle of this. We should understand 
everything that is going on. We should be able to challenge, 
and that is precisely what I intend to do.
    I want to start with a question that I would like to ask 
about access. There has been some conversation today about 
backhaul and special access. In previous comments to the FCC, 
T-Mobile has said that the FCC should consider fundamental 
reforms to its regulation of the rates for special access 
services. That, in T-Mobile's experience, are at least subject 
to competition. T-Mobile continues to seek an alternative to 
subsidizing its two largest competitors, but today AT&T and 
Verizon continue to supply the majority of T-Mobile's backhaul 
services. What implications could this merger have on special 
access rates, and how competitive can smaller carriers be if 
they have to pay high rates to offer consumers competitive 
plans?
    Mr. Obermann, you started this conversation. Now, what are 
you saying about it today?
    Mr. Obermann. I can say, Congresswoman, that we have made 
ourselves increasingly independent from the local telephone 
companies over the last few years and that there are now 
numerous--or there are sources to get special access from such 
as subsidiaries of utility companies, such as fiber companies, 
such as cable companies, or you can do it by microwave links. 
So it is a very competitive environment. And we have reduced 
already our dependency on the local telephone carriers.
    The merger as such, ma'am, doesn't change the situation 
because we are not selling special access to third parties. So 
we are not a part in the competition there. And hence, since we 
don't sell, the merger between AT&T and us doesn't change the 
picture.
    Ms. Waters. Mr. Berry, I think you had something to say 
about backhaul and access.
    Mr. Berry. Yes. I guess the question I would ask is how do 
you determine what is a competitive price in a monopoly 
situation. I mean, normally in a monopoly situation, the market 
dominance of an individual or a company sort of trumps every 
other competitive price that is set by market forces. So if you 
are a GSM provider, there are not many alternatives there. By 
taking T-Mobile out of the market--and they are a competitive 
purchaser of backhaul--you shrink that market availability, and 
AT&T will fold them into their capability and it will be part 
of the preference service that AT&T provides.
    Ms. Waters. Some of us are going to pay special attention 
to this.
    I really am concerned about the jobs. You have answered a 
lot of questions about jobs, and you talked about where your 
investments are going, where the growth is, all of that. But I 
want you to know it is a major concern for many Members of 
Congress.
    I want to move to something else. In the merger of Verizon 
and Alltel in 2008, the Justice Department ordered Verizon to 
divest assets in 100 areas in 22 States in order to proceed 
with its $28 billion acquisition of Alltel. The Bush 
administration's DOJ ordered Verizon to divest wireless 
businesses in certain areas, as well as radio spectrum. Verizon 
retained Morgan Stanley to sell the assets. However, we learned 
that AT&T bought the lion's share of Verizon's assets in 79 
rural areas for $2.35 billion. AT&T acquired spectrum licenses, 
cell towers, and 1.5 million subscribers in the deal. Since 
AT&T phones were not compatible with Verizon phones, all of 
those subscribers had to upgrade and get new phones. That is a 
cost that we have to be concerned about.
    Beyond that, I think you know the information about how 
minorities are using wireless. From what I can see, Latinos and 
African Americans lead the way in the mobile broadband use, 
subscribing at a rate of 53 percent and 58 percent, 
respectively. That is big.
    And so having said that, I know we are early in the 
process, but do you anticipate having to divest any assets, 
small or rural businesses, as a result of this merger? And if 
so, have you thought about ways to extend opportunities for 
small, minority women-owned businesses to participate in some 
way? I am really focused on wealth-building these days, job 
creation, and ownership. Do you have any thoughts on that, Mr. 
Stephenson?
    Mr. Stephenson. Yes, ma'am. Virtually every transaction we 
have done over the last few years has had similar requirements 
to achieve the approval. There will be certain markets that the 
DOJ will deem to be too much concentration, and so they will 
require us to divest networks, spectrum, and customer bases. 
And so I have an expectation there will be markets like that in 
this particular transaction that we will have to divest.
    And I will tell you I have every expectation that we would 
entertain any number of options of people to come in and 
acquire these assets. They will be good standing businesses, 
businesses with revenue streams. It will require some capital, 
obviously, to keep them going. But, yes, we would obviously 
look at any kind consideration for other folks we could help in 
business development and economic development and folks who 
would not ordinarily have an opportunity to do this. We would 
give that evaluation.
    Ms. Waters. Well, I appreciate that. As Mr. Conyers said 
earlier, we get a lot of these conditions in these mergers that 
never get realized. And I am not focused on conditions right 
now. I think the case has been made that this may not lend 
itself to conditions because this is so big. We are talking 
about creating a duopoly here.
    But I still want you to think about minority ownership and 
participation in a real way. It is about time that minorities 
who are consumers who are spending huge amounts of money in any 
industry be considered as owners in some way. And so I will be 
watching that.
    Thank you very much, Mr. Chairman.
    Mr. Stephenson. We have done those in the past too, madam.
    Ms. Waters. But I don't know of any that have been 
successful at this point.
    Mr. Goodlatte. We will allow Mr. Obermann to respond too.
    Mr. Obermann. We have always taken great pride----
    Ms. Waters. I can't hear you.
    Mr. Obermann. We have always taken great pride in serving 
minorities both as customers. We also have preferred suppliers. 
About 21 percent or so of our suppliers are minorities. So are 
our consumers. 50 percent are minority. And they will get 
access to better coverage, to better service, eventually to the 
best possible network and they can keep their rate plans. At 
least that is how I understood Mr. Stephenson in previous 
discussions. To me that is an important point. We care. And to 
them, it is beneficial.
    Ms. Waters. That is great. You add to that ownership and 
you excite me.
    Thank you. I yield back.
    Mr. Goodlatte. I thank the gentlewoman.
    And I want to thank all of our witnesses today. There has 
been a lot more activity at this half of the table than at this 
half, but Professor Wright and Professor Gavil, Ms. Desai, your 
contributions were all important and very welcome. On this 
side, you had a lot of pointed questions directed to all three 
of you. I think you did well with your answers.
    We have a number of additional questions that will be 
coming forward in writing, and we hope that you will respond to 
those quickly so they can be included in the record.
    Ms. Jackson Lee. Mr. Chairman?
    Mr. Goodlatte. The gentlewoman from Texas?
    Ms. Jackson Lee. Yes, Mr. Chairman. As the gentlelady is 
leaving, I just wanted to make sure, since I understand Mr. 
Conyers might have had that line of questioning, that Mr. 
Stephenson, a third person is interested in the opportunity for 
spin-offs and business development. That is myself.
    And the other individuals at the other end of the table, 
Mr. Chairman, we didn't ignore. We will be reading their 
materials. I really believe this will be a long process that we 
all will be engaged in.
    So I yield back. Thank you very much.
    Mr. Goodlatte. Without objection, all Members will have 5 
legislative days to submit to the Chair additional written 
questions for the witnesses which we will forward and ask the 
witnesses to respond as promptly as they can so their answers 
may be made a part of the record.
    Without objection, all Members will have 5 legislative days 
to submit any additional materials for inclusion in the record.
    With that, I again thank our witnesses and declare the 
hearing adjourned.
    [Whereupon, at 3:25 p.m., the Subcommittee was adjourned.]























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