- Associated Press - Monday, March 21, 2011

WASHINGTON (AP) - AT&T’s surprise announcement that it plans to acquire T-Mobile USA will force federal regulators to confront a difficult antitrust question: Can American consumers get good wireless service at a fair price if they must choose between just two national companies?

That debate will be at the center of the government review of the $39 billion cash-and-stock deal announced Sunday. If approved, the purchase would catapult AT&T past Verizon Wireless to become the nation’s largest cellphone service provider.

The deal would combine AT&T Inc., the nation’s second-largest wireless carrier, with T-Mobile USA, the fourth-largest, which is now owned by Germany’s Deutsche Telekom AG. And it could pave the way for Verizon to go after Sprint Nextel Corp., which would be a distant No. 3 and the only remaining national provider.

None of the smaller U.S. carriers, including Leap Wireless, Metro PCS and U.S. Cellular, has complete nationwide coverage.

Officials at the Justice Department and the Federal Communications Commission could spend a year or more scrutinizing the deal before deciding whether to block it or allow it to proceed with substantial conditions attached.

“I am not convinced that this deal is unthinkable,” said Jeffrey Silva, an analyst with Global Medley Advisors. “But it’s a very, very heavy lift.”

Regulators will conduct a thorough market-by-market analysis to determine how many wireless choices consumers would have in communities across the country. And even if they allow the deal to go through, government officials would probably require the combined company to sell off assets _ including wireless spectrum, cell towers and customers _ in particular markets that are too concentrated.

The bigger question facing federal officials is whether the enormous cost of building a nationwide wireless network means that a market dominated by only two companies is the best they can hope for.

And if that’s the case, what kinds of merger conditions should the government impose on AT&T to prevent it from abusing its power?

“This marketplace doesn’t work even before this merger,” said Mark Cooper, director of research for the Consumer Federation of America. “I want policymakers to confront the fiction that competition in this market is sufficient to protect consumers.”

Cooper, for one, would like to see federal regulators bar AT&T from engaging in common industry practices such as charging consumers large fees for text messaging and for ending contracts before they expire.

He would also like to see government officials impose stronger “network neutrality” rules on AT&T’s wireless system to ensure that subscribers can access apps and other online applications without carrier interference.

Net neutrality rules adopted by the FCC late last year prohibit broadband providers from discriminating against online traffic, but they give wireless companies a considerable amount of flexibility to manage traffic on their systems.

Analyst Rebecca Arbogast of the firm Stifel Nicolaus believes government regulators will also consider conditions intended to help smaller wireless providers compete.

Those could include data-roaming obligations, which would require AT&T to let smaller regional wireless companies use its network to send data traffic in places where they do not offer their own service. The FCC is currently considering adopting industry-wide data roaming rules.

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