[Senate Hearing 112-96]
[From the U.S. Government Publishing Office]






                                                         S. Hrg. 112-96

  THE AT&T/T-MOBILE MERGER: IS HUMPTY DUMPTY BEING PUT BACK TOGETHER 
                                 AGAIN?

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 11, 2011

                               __________

                          Serial No. J-112-20

                               __________

         Printed for the use of the Committee on the Judiciary











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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York              JON KYL, Arizona
DICK DURBIN, Illinois                JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
AL FRANKEN, Minnesota                MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware       TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
CHUCK SCHUMER, New York              MICHAEL S. LEE, Utah
AMY KLOBUCHAR, Minnesota             CHUCK GRASSLEY, Iowa
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut
       Caroline Holland, Democratic Chief Counsel/Staff Director
                David Barlow, Republican General Counsel













                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa......     6
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     4
    prepared statement...........................................    57
Lee, Hon. Michael S., a U.S. Senator from the State of Utah......     2

                               WITNESSES

Cohen, Larry, President, Communications Workers of America, 
  Washington, DC.................................................    16
Hesse, Daniel R., Chief Executive Officer, Sprint Nextel 
  Corporation, Overland Park, Kansas.............................    11
Humm, Philipp, President and Chief Executive Officer, T-Mobile 
  USA, Inc., Bellevue, Washington................................     9
Meena, Victor H. "Hu", President and Chief Executive Officer, 
  Cellular South, Inc., Ridgeland, Mississippi...................    13
Sohn, Gigi B., President, Public Knowledge, Washington, DC.......    14
Stephenson, Randall L., Chairman, Chief Executive Officer, and 
  President, AT&T Inc., Dallas, Texas............................     7

                         QUESTIONS AND ANSWERS

Responses of Larry Cohen to questions submitted by Senator Leahy.    43
Responses of Daniel Hesse to questions submitted by Senators 
  Leahy, Grassley, Kohl and Lee..................................    46
Responses of Philipp Humm to questions submitted by Senators 
  Kohl, Leahy and Lee............................................    54
Responses of Victor H. ``Hu'' Meena to questions submitted by 
  Senators Leahy, Kohl, Lee and Blumenthal.......................    63
Responses of Gigi Sohn to questions submitted by Senators 
  Blumenthal, Kohl, Leahy and Lee................................    72
Responses of Randall L. Stephenson to questions submitted by 
  Senators Kohl, Leahy, Grassley, Franken, Blumenthal and Lee....    97

                       SUBMISSIONS FOR THE RECORD

American Antitrust Institute (AAI), Albert A. Foer, President and 
  Richard M. Brunell, Director of Legal Advocacy, Washington, DC, 
  May 16, 2011 letter............................................   149
Cohen, Larry, President, Communications Workers of America, 
  Washington, DC, statement......................................   151
Desai, Parul P., Policy Counsel, Consumers Union, Washington, DC, 
  statement......................................................   167
Hesse, Daniel R., Chief Executive Officer, Sprint Nextel 
  Corporation, Overland Park, Kansas, statement..................   173
Humm, Philipp, President and Chief Executive Officer, T-Mobile 
  USA, Inc., Bellevue, Washington, statement.....................   187
Meena, Victor H. ``Hu'', President and Chief Executive Officer, 
  Cellular South, Inc., Ridgeland, Mississippi, statement........   190
Rural Broadband Policy Group, Knoxville, Tennessee, May 10, 2011, 
  letter.........................................................   203
Sohn, Gigi B., President, Public Knowledge, Washington, DC, 
  statement......................................................   205
Stephenson, Randall L., Chairman, Chief Executive Officer, and 
  President, AT&T Inc., Dallas, Texas, statement.................   229
Turner, Derek, Research Director, Free Press, Washington, DC, May 
  10, 2011, letter...............................................   234

 
  THE AT&T/T-MOBILE MERGER: IS HUMPTY DUMPTY BEING PUT BACK TOGETHER 
                                 AGAIN?

                              ----------                              


                        WEDNESDAY, MAY 11, 2011

                                       U.S. Senate,
         Subcommittee on Antitrust, Competition Policy, and
                                           Consumer Rights,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:15 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Present: Senators Kohl, Leahy, Klobuchar, Franken, 
Blumenthal, Lee, Grassley, and Cornyn.

 OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Chairman Kohl. Good morning. Today we meet to consider a 
merger that is likely to have profound implications on the way 
millions of Americans communicate. The proposed merger between 
AT&T and T-Mobile will bring together two of the four remaining 
national cell phone carriers to create the Nation's largest 
cell phone network, with an estimated 43 percent market share. 
Should this deal be approved, AT&T and Verizon will control 
close to 80 percent of the national cell phone market. A deal 
creating such huge national market shares in an already highly 
concentrated industry, make it incumbent on you, Mr. 
Stephenson, and you, Mr. Humm, to justify why we should allow 
you to do it.
    An industry that began in the 1980s as luxury car phones 
used mainly by business people has today become the main way we 
communicate--outpacing wired phones with nearly 300 million 
subscribers. Cell phones are increasingly the main way millions 
of consumers connect to the wealth of information found on the 
Internet. As anyone knows who has ever observed people in 
restaurants and social events, we are fast becoming a Nation 
addicted to the bright screens of our mobile phones.
    Just a few years ago, cell phone competition was a bright 
spot for American consumers. Consumers had the choice of no 
fewer than six major national cell phone companies. And as a 
result, aggressive competition led to declining prices and to 
the rollout of ever new services. Today the situation is quite 
different. This deal would leave us with only three national 
companies, two of whom--AT&T and Verizon--will control nearly 
80 percent of the market. And there are real fears that the 
third--Sprint--will itself be sold to one of the big two and we 
would wind up with just a cell phone duopoly. An industry that 
once was a monopoly owned by AT&T in the last century is in 
danger of reverting to a duopoly in this new century. And so we 
must ask: Is putting the control of such a vital economic 
sector relied on daily by millions of people in just two or 
three companies good for our country?
    Today's hearing will examine the critical questions: What 
will reducing the number of cell phone companies to three mean 
to consumers? Will they see ever higher phone bills, especially 
for critical services such as connections to the Internet? What 
will the absence from the market from the lower priced T-Mobile 
mean? Will AT&T and Verizon gain a stranglehold on the spectrum 
that competitors need?
    The merging companies argue that the proper way to analyze 
this merger is at the local level, where the presence of 
regional carriers adds to the number of competitors. But we 
must remember that these are mobile phones, which consumers use 
while traveling. In order to provide this service, these 
regional companies must pay ``roaming fees'' to connect their 
customers to the national phone networks owned by their 
competitors. Does the fact that the small regional companies 
have to pay AT&T and Verizon millions of dollars in roaming 
fees seriously harm their ability to compete? Further, these 
regional phone companies often do not have access to the newest 
and most in-demand smartphones that consumers want. Can they 
compete with the national giants without offering the most up-
to-date phones?
    AT&T also asserts that this deal will enable it to serve 
many rural areas so that it will cover 97 percent of the 
Nation. But on this point, we must ask whether it is necessary 
for AT&T to merge with one of its three main competitors in 
order to do this? Could it achieve this laudable goal by 
spending some of the $39 billion dollars it will spend to 
acquire T-Mobile to expand its network instead?
    In closing, the same rules of basic economics and common 
sense apply to this industry as in all others: Four competitors 
are better than three. The more competitive providers of cell 
phone service, the lower the price, the better the quality of 
service, and the more innovation that results. We must also 
keep in mind that the cell phone industry is a highly 
profitable and rapidly growing business. So the burden will 
squarely fall on AT&T and T-Mobile to convince us why this 
merger is desirable, how it will benefit consumers, and to put 
aside our concerns that it may very well harm competition.
    Now I will turn to our Ranking Member, Senator Lee, for his 
opening remarks.

 STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE STATE OF 
                              UTAH

    Senator Lee. Thank you, Mr. Chairman. Given the large 
number of witnesses that we have participating in this hearing 
and the complexity of the issues we will be confronting, I will 
keep my opening remarks as brief as possible so that we can 
have as much time as we need for questions.
    The mobile phone market is a critical component of our 
Nation's economy. According to some recent estimates, it is 
directly responsible for more than 250,000 jobs. It generates 
over $150 billion of economic activity each year and accounts 
for nearly $25 billion in annual capital investment.
    It is difficult to overstate the increasing importance of 
mobile devices in the lives of virtually all Americans. Many 
people rely on wireless phones as their principal means of 
chairman, with more than a quarter of the population having 
become wireless-only households. Mobile devices are also 
increasingly a primary means by which individuals access the 
Internet. Next year, smartphone sales are expected to be 
greater than the combined sales of both desktop and laptop 
computers.
    This explosion in demand for wireless services has led to 
significant capacity constraints that have affected the entire 
country. Most of us are all too familiar with dropped calls 
throughout the industry and occasionally sluggish data speeds. 
The strength of available wireless networks is vital to 
individuals, families, schools, businesses, public safety 
organizations, and virtually all aspects of modern 
communications.
    With the current capacity crunch in mind, the Obama 
administration announced last year in the National Broadband 
Plan a goal to lead the world in mobile innovation with the 
fastest and most extensive wireless networks of any country.
    An important question before our Subcommittee today is 
whether the proposed merger between AT&T and T-Mobile is a 
positive step along the path toward a world-class wireless 
broadband network throughout the United States. There are a 
number of reasons to believe that the merger could contribute 
to this goal. In many respects, AT&T and T- Mobile are unique 
in having roughly compatible networks, complementary spectrum 
holdings, and a well-matched cell site system of grids. A 
merger between the two companies may provide significant and 
immediate efficiencies that will enable enhanced service 
quality, fewer blocked or dropped calls, and increasing data 
speeds.
    Ultimately the entire wireless industry will require 
additional spectrum to address the significant growth in demand 
for mobile broadband services. Until such spectrum is made 
available, the benefits of this proposed merger will enable 
AT&T to roll out its 4G LTE network, and AT&T has committed to 
provide this more advanced wireless broadband service to 97 
percent of the U.S. population.
    In addition to offering better services and speeds, 4G 
nationwide networks create opportunities for handset innovation 
and the development of data-rich applications. I favor market 
approaches rather than Government funding and intervention to 
develop a nationwide mobile broadband network.
    The U.S. wireless marketplace is in many ways less 
concentrated than in other industrialized nations. Some suggest 
that our National interests would not be served by restricting 
the American marketplace to a larger number of spectrum-starved 
providers ill-equipped to build the most advanced wireless 
networks.
    At the same time, I share some of the concerns expressed by 
my colleague the Chairman, Senator Kohl, and I believe it is 
our responsibility, along with the Department of Justice's 
Antitrust Division and the Federal Communications Commission, 
to ensure that the proposed merger would not produce damaging 
anticompetitive effects.
    The combination of AT&T and T-Mobile would create the 
largest wireless carrier in the Nation with roughly 42 percent 
of all wireless subscribers in the United States, and it would 
leave the market with only three rather than four major 
nationwide carriers that account for the vast majority of total 
subscribers in America.
    A critical question, therefore, is whether the smaller 
regional carriers can effectively compete in a post-merger 
market, helping to discipline prices, preserve consumer choice, 
and promote innovation. Two potential roadblocks to robust 
competition deserve special attention.
    First, regional carriers with limited spectrum holdings 
must rely on the large national carriers for data roaming 
access outside their own local areas. Although a recent FCC 
order mandates that major carriers offer commercially 
reasonable data roaming agreements, the terms and conditions of 
these agreements will largely determine whether smaller 
carriers can become a true competitive force in a nationwide 
market.
    Second, regional providers are often at a competitive 
disadvantage in gaining access to the most popular and 
desirable handsets in the system. National providers with large 
volume and advertising budgets are better positioned to 
negotiate exclusive contracts for cutting-edge devices like the 
iPhone and lower prices for other handsets purchased in bulk.
    In seeking to address these and other issues relating to 
the competitive position of smaller regional carriers, we would 
do well to remember the insight made famous by Robert Bork's 
seminal work, ``The Antitrust Paradox'': Competition must be 
understood as maximization of consumer welfare.
    Our analysis of the proposed merger between AT&T and T-
Mobile should be guided by what will be best for consumers in 
the form of prices, service quality, and ultimately range of 
choice.
    Thank you, Mr. Chairman.
    Chairman Kohl. Thank you, Mr. Lee.
    We turn now to the Chairman of our Committee, Senator 
Leahy.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Chairman Leahy. Thank you, Chairman Kohl and Senator Lee. I 
thank you both for holding this hearing, and I will ask consent 
that a number of my questions be submitted for the record.
    Chairman Kohl. Without objection.
    Chairman Leahy. We are also doing a hearing in the 
Appropriations Committee with our military, a matter of some 
interest these days, and I have to be there. But when we talk 
about the competitive impact of AT&T's proposed acquisition of 
T-Mobile, it would combine the Nation's second and fourth 
largest providers of wireless communications. It goes without 
saying it will have a lasting impact on the wireless industry. 
At present, four companies control nearly 90 percent of the 
national wireless market, and this acquisition would further 
consolidate an already concentrated market for wireless 
communication.
    I am particularly concerned about what this acquisition may 
mean in rural parts of the country or a State like mine, 
Vermont, that is primarily rural. Too many parts of my State 
still have no wireless service. I live 5 miles from our State 
capital on a dirt road in a town adjoining Montpelier. It was 
only very recently I was even able to get a modest form of 
high-speed Internet. The two communities on either side of me, 
Montpelier and Waterbury, each had it. Our town did not. But we 
are typical of so many other places.
    AT&T began providing service in Vermont just a few years 
ago, after the Department of Justice required Verizon to sell 
spectrum it was to acquire as part of another merger. The 
Department's scrutiny of that merger led to Vermonters having 
access to the iPhone for the first time. Now, if we are going 
to have acquisitions in this industry, they should provide 
similar consumer benefits.
    Today wireless carriers contend that a shortage in 
available spectrum limits their ability to both improve and 
expand wireless services. I have been told that in Vermont--I 
will use that as an another example. In Vermont, experts tell 
me both AT&T and T-Mobile have large blocks of unused spectrum 
in rural areas, and that leads Vermonters with more dropped 
calls and fewer cellular options in places where emergency 
responders have no way of communicating.
    Still, both AT&T and T-Mobile argue that their combined 
spectrum will enable them to provide a greater number of 
consumers with more advanced wireless technology than either 
could independently. AT&T represented to me that within 2 years 
this acquisition will result in 250,000 more Vermonters having 
access to its 4G service than would otherwise be serviced by 
either company on its own. That is more than a third of the 
population of our State. Knowing how slowly things have moved 
in the past, I hope you will forgive me if I am a bit 
skeptical, and my questions that I will have on this issue, I 
would urge AT&T and others to respond in writing. I look 
forward to hearing more details on the basis for that 
representation. I want assurances that if this merger goes 
through, AT&T is going to follow through on that kind of 
buildout.
    Most Vermont cellular customers have never considered T-
Mobile as a viable option since they have little, if any, 
retail presence in my home State. But at the same time, T- 
Mobile owns a great deal of wireless spectrum across the Green 
Mountains--spectrum that until the announcement of this 
acquisition was being built out by T-Mobile in an effort to 
grow its footprint in Vermont. As I said, AT&T also holds a 
great deal of wireless spectrum in Vermont. This is all 
spectrum that is not being used, I might say. While I have been 
impressed with their aggressive buildout to date--I will give 
them a compliment for that--I worry that many of the very rural 
areas of our State will continue to be left behind with or 
without this acquisition.
    This is extremely important because if we are going to 
create jobs in many parts of our State, one of the first things 
we hear from companies that want to go in there is what kind of 
wireless do we have here.
    Now, there is no doubt that AT&T and T-Mobile are at the 
forefront of innovation in the wireless market. Each company 
has a history of developing new and creative and amazing ways 
to enable consumers to communicate wirelessly, and I do applaud 
their work. But it is this history of innovation that 
highlights the importance of the antitrust laws. Consumers 
ultimately benefit through more choices of better products at 
lower prices. That is why I am concerned about jobs, not just 
in Vermont but throughout our country.
    I expect the Department of Justice and the Federal 
Communications Commission to conduct an exhaustive and careful 
analysis of this acquisition and its impact on competition, and 
certainly the Judiciary Committee will push them to do that. 
But specifically the analysis should include the impact the 
proposed transaction will have on consumer prices and choices 
for cell phone and wireless data plans and whether the 
acquisition will stifle or promote innovation. I expect that 
the Justice Department is wary of creating a market where 
additional companies need to merge in order to survive.
    So, again, I thank, Mr. Chairman and Senator Lee, both of 
you, for holding this hearing. I think it is extremely 
important.
    [The questions of Chairman Leahy appear under questions and 
answers.]
    Chairman Kohl. Thank you, Senator Leahy.
    Now we turn to our Ranking Member, Senator Grassley.

STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE 
                            OF IOWA

    Senator Grassley. Mr. Chairman, thank you very much for 
holding this hearing. Clearly this is a very important matter 
that is going to get more attention as time goes on. I 
appreciate arguments that I have read in support and arguments 
that oppose the merger. There is still much to learn, but I 
think in grassroots America that people are beginning to take 
notice of this because in three of my 33 town meetings that I 
had during the spring recess, this issue came up. People asked 
me what I thought of it. It was just announced at that 
particular time, so obviously, uncharacteristic of me, I have 
an answer to most of my constituents' questions, but I did not 
have an answer to that one. And I asked each of the people that 
asked that question whether they were for it or against it, and 
none of them ventured a guess of whether they were for it or 
against it. So I did not learn from them either.
    [Laughter.]
    Senator Grassley. But, anyway, this is something that 
particularly in rural America I think is going to get 
attention. So I look forward to the testimony we will receive 
today on the proposed merger.
    I hope that witnesses can explain the impact of a combined 
AT&T/T-Mobile will have on consumers through prices, 
competition, and access. And as you all know, there are many 
rural areas of the United States that are concerned about 
service, and particularly in my State of Iowa. So I want to 
hear how the proposed merger will help residents in my State 
gain access to faster and more dependable services, and I will 
have some questions along those lines. I would also have 
questions along the lines of whether it will increase rates and 
whether it will help spur more consumer choice.
    Mr. Chairman, I am going to be back and forth between this 
Committee and the Finance Committee because we have a hearing 
right now on the Colombian Free Trade Agreement, but I would 
like to come back and answer questions and not lose my turn, if 
I could.
    Thank you very much for your attention on this.
    Chairman Kohl. Thank you very much, Senator Grassley.
    We would now like to introduce our panel of witnesses. Our 
first witness to testify today will be Randall Stephenson. Mr. 
Stephenson is the chairman of the board, president, and CEO of 
AT&T.
    Next we will be hearing from Philipp Humm. Mr. Humm has 
been the president and CEO of T-Mobile since 2010 and has also 
served as chief regional officer and a member of the executive 
Committee of T-Mobile International.
    Next we will be hearing from Daniel Hesse. Mr. Hesse is the 
CEO and president of Sprint Nextel Corporation. He is also 
chairman of CTIA, the wireless association.
    Our fourth witness today will be Hu Meena. Mr. Meena serves 
as president and CEO of Cellular South and was recently elected 
chairman of the board with the Rural Cellular Association.
    Next we will be hearing from Gigi Sohn. Ms. Sohn is 
president and co-founder of Public Knowledge, a public interest 
organization dedicated to promoting innovation and protecting 
consumers in the digital age.
    Finally, we will be hearing from Larry Cohen. Mr. Cohen has 
served as president of Communications Workers of America since 
2005.
    We thank you all for appearing at our Subcommittee hearing 
to testify today, and we ask our witnesses to rise and raise 
their right hand as I administer the oath. Do you all affirm 
that the testimony you are about to give before this Committee 
is the truth, the whole truth, and nothing but the truth, so 
help you God?
    Mr. Stephenson. I do.
    Mr. Humm. I do.
    Mr. Hesse. I do.
    Mr. Meena. I do.
    Ms. Sohn. I do.
    Mr. Cohen. I do.
    Chairman Kohl. Thank you very much.
    Mr. Stephenson, we will begin with you, and we ask that the 
panelists limit their comments to 5 minutes. Mr. Stephenson?

 STATEMENT OF RANDALL L. STEPHENSON, CHAIRMAN, CHIEF EXECUTIVE 
        OFFICER, AND PRESIDENT, AT&T INC., DALLAS, TEXAS

    Mr. Stephenson. Thank you, Chairman Kohl and Ranking Member 
Lee and members of the Subcommittee. I am Randall Stephenson, 
chairman and CEO of AT&T, and I do appreciate the opportunity 
to talk to you about the consumer benefits of AT&T's 
acquisition of T-Mobile USA from Deutsche Telekom.
    First and foremost, this transaction is about consumers. It 
is about keeping up with consumer demand specifically. It is 
about having the capacity to drive innovation and competitive 
prices. And most important, it is about giving consumers what 
they expect, and that is, fewer dropped calls, faster speeds, 
and access to high- speed, fourth-generation mobile Internet 
service--whether they live in a large city, a small town, or 
out in the country.
    Over a short period of time--in fact, just the last 4 
years--we have seen a major revolution in wireless. Smartphones 
and mobile apps have exploded, mobile Internet usage has 
soared, and innovation has cycled at an amazing pace. Consumers 
and the economy have benefited, and our network, more than any 
other, has carried the load.
    Over the past 4 years, data volumes on our mobile network 
shot up by 8000 percent.
    To meet this demand, over this same 4-year period AT&T 
invested more in the United States than any other public 
company--some $75 billion in capital--and we continue to invest 
at a very aggressive pace, and that is because the next wave of 
demand is already on us, and it is on us in the form of tablets 
and service like mobile high-definition video.
    In 2015--and that is just 4 years from now--by the middle 
of February in 2015, we estimate our network will have already 
carried as much mobile data traffic as we carried for the 
entire year in 2010. That is 8 to 10 times higher than where we 
are today. That is an indication as to how fast the mobile 
Internet is now growing.
    Just about the only thing that we know of that can slow 
this cycle of innovation and growth is a lack of capacity to 
meet that demand. That is why there is such a focus right now 
on spectrum, and I do applaud the FCC and we applaud Congress 
for their leadership on this particular issue.
    As FCC Chairman Genachowski has said, and I would like to 
quote him, ``[i]f 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.'' I do not think any of us wants those 
things. But the fact is that even with everybody's focus and 
efforts, it will be several years before significant amounts of 
new spectrum are placed into service, and that is just the 
reality we face.
    So to meet growing consumer demand, we have to find 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, which means that combining them will 
create much more network capacity than if we were operating 
them separately. More capacity means improved service, fewer 
dropped calls, fewer blocked calls, and a faster, more reliable 
mobile Internet experience. And it is a very basic concept that 
in any industry greater capacity is a fundamental driver of 
competition and innovation. The U.S. wireless marketplace is 
among the most competitive in the world, and it will remain so 
after this transaction.
    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 it is 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 just general development. We will deliver these 
benefits with the only unionized wireless workforce of any 
major carrier in America, and 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 to their customers.
    So that is a quick overview of this transaction's logic and 
benefits and some of the reasons this transaction has won 
strong support from union, consumer, minority, and local 
representatives, as well as several industry experts.
    Thank you very much for your time.
    [The prepared statement of Mr. Stephenson appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Stephenson.
    Mr. Humm.

   STATEMENT OF PHILIPP HUMM, PRESIDENT AND CHIEF EXECUTIVE 
       OFFICER, T-MOBILE USA, INC., BELLEVUE, WASHINGTON

    Mr. Humm. Yes, thank you, Chairman Kohl, Ranking Member 
Lee, and members of the Subcommittee. Good morning. I am 
Philipp Humm, CEO of T-Mobile USA. I appreciate the opportunity 
to testify today on behalf of T-Mobile USA.
    Coming from Deutsche Telekom in Europe, I joined T-Mobile 
USA in July 2010 and became CEO in November 2010. T-Mobile was 
facing revenue declines for 2 consecutive years due mainly to a 
weakened brand position. The management of T-Mobile has in the 
meantime implemented a new strategy that is aimed at leading 
the company back to growth. Results so far are still mixed: 
While revenues have stabilized, subscriber losses remain our 
No. 1 concern.
    Returning the business to growth, however, will not be 
sufficient to secure T-Mobile's strategic future. As data usage 
continues to explode, spectrum is becoming a constraint to our 
business, with T-Mobile facing spectrum exhaust over the next 
couple of years in a number of significant markets. Moreover, 
our spectrum holdings will not allow us to launch LTE. T-Mobile 
also lacks the low band spectrum that would enable it to offer 
nationwide deep in-house or deep in-building coverage, 
particularly to reach homes in suburbs and in rural areas. In 
addition to these unresolved strategic issues, T-Mobile's 
parent, Deutsche Telekom, is not in a position to finance the 
necessary large-scale investments in the U.S. for T-Mobile to 
really remain competitive. The combination with AT&T allows T-
Mobile to address these challenges as well as to realize near-
term benefits for its customers. The combination brings 
together two uniquely compatible companies, achieving extensive 
synergies, while greatly benefiting the American economy, 
consumers, and particularly T-Mobile customers. We have 
identified at least four major benefits for T-Mobile customers:
    First, T-Mobile customers will enjoy improvements in their 
coverage through access to AT&T's low-band 850 MHz spectrum. 
With the acquisition by AT&T, T-Mobile will be able to offer to 
nearly all its customers full access to 850 MHz AT&T spectrum, 
which will significantly improve deep in-building coverage to 
its customers. As T-Mobile already uses chipsets supporting 850 
MHz, customers will be able to take advantage of these 
improvements shortly after the transaction closes.
    Second, the transaction will result in near-term network 
quality improvements for T-Mobile customers. As a result of 
AT&T's and T-Mobile's use of compatible GSM-based technologies 
and the companies' complementary cell site grids, the combined 
company will be able to quickly merge their networks and pool 
spectrum. Significant operating efficiencies will be achieved 
through channel pooling, control channel efficiencies, and cell 
splits. For T-Mobile customers, this 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 also give the combined company 
the resources and spectrum it needs to broadly deploy next 
generation LTE service. T-Mobile does not have sufficient 
spectrum to roll out a competitive LTE network while also 
continuing to support its existing GSM and HSPA+ networks. So 
by combining the spectrum of both companies, the entity will be 
able to support LTE and the two legacy technologies, GSM and 
HSPA+. It will allow LTE to reach more than 97 percent of the 
U.S. population, as stated by AT&T, which is something T-Mobile 
would not have been able to do on its own.
    Fourth, the transaction will allow the combined company to 
increase capacity and to significantly reduce costs, which will 
drive prices down and enhance opportunities for innovation, 
making the U.S. an even more dynamic and competitive market. 
The U.S. wireless marketplace is very competitive. 
Approximately three-quarters of Americans today live in areas 
contested by at least five facilities-based wireless providers. 
Competition has been particularly fierce for value-driven 
customers, which are the core of T-Mobile's customer base. This 
highly competitive marketplace will ensure that consumers 
across the board benefit from the enormous cost savings and 
capacity increases that AT&T estimates from the transaction. We 
expect increased competition and lower prices for all 
consumers. By contrast, without the deal, a spectrally 
constrained AT&T and a spectrally and capital-constrained T-
Mobile would be able to provide much less vigorous competition 
separately than would the more efficient, combined company.
    To conclude, I am confident that T-Mobile customers will 
experience significant and tangible benefits from the proposed 
combination with AT&T, both immediately and longer term. The 
transaction will provide our combined customers and the 
American public improved GSM, UMTS, and LTE services faster 
than either company could provide on its own. And the 
competition that has characterized this industry will continue 
and be even stronger post transaction.
    Thank you for your time, and I welcome any questions you 
might have.
    [The prepared statement of Mr. Humm appears as a submission 
for the record.]
    Chairman Kohl. Thank you, Mr. Humm.
    Mr. Hesse.

 STATEMENT OF DANIEL R. HESSE, CHIEF EXECUTIVE OFFICER, SPRINT 
           NEXTEL CORPORATION, OVERLAND PARK, KANSAS

    Mr. Hesse. Good morning, Chairman Kohl, Ranking Member Lee, 
and members of the Subcommittee. I am Dan Hesse, the CEO of 
Sprint Nextel. Thank you for the opportunity to address the 
potential negative consequences that AT&T's proposed takeover 
of T-Mobile could have on American consumers, innovation, and 
the economy.
    I would like to use my time to focus on how a vertically 
integrated duopoly would impact the wireless industry. I am not 
here to ask for a special break or conditions. I am here 
because, like all Americans, Sprint has a stake in the impact 
this acquisition would have on an industry that has prospered 
on competition and innovation, the very elements this 
transaction threatens.
    Sprint was born out of competition. We operate in an open, 
competitive environment where innovation thrives and 
technological advances and devices and services expand rapidly. 
An open, competitive environment benefits my company, but also 
every person who owns a wireless device.
    The competitive environment has driven tremendous growth. 
It took a hundred years to build a billion fixed phone lines, 
but only 20 years to add 5 billion mobile subscribers.
    At the end of 2010, there were over 302 million wireless 
subscriptions in the United States representing about 96 
percent of the U.S. population. Robust competition is driving 
prices down and quality up, so much so that as of June 30, 
2010, one-quarter of all adults lived in wireless-only homes.
    The impact of wireless competition on our economy has been 
profoundly positive. In 2010, the wireless industry accounted 
for nearly $160 billion in revenue and approximately $25 
billion in capital investment and employed, directly or 
indirectly, about 3.6 million Americans. If the industry 
remains competitive, productivity gains over the next 10 years 
will amount to almost $860 billion in additional GDP.
    Creating an entrenched, integrated duopoly will reverse 
this progress and stifle the vibrancy of the wireless industry. 
In the mid-1990s, Congress and the FCC opened the original 
wireless duopoly to competition, and the firms that became 
Sprint and became T-Mobile entered, and competition then began 
to make a noticeable difference.
    AT&T's acquisition of T-Mobile will turn back the clock on 
wireless competition. It would, as the title of this hearing 
suggests, put Ma Bell back together again.
    Let us examine what the Twin Bells would control in a 
duopolistic, post acquisition world. Two companies would 
control over 80 percent of the U.S. contract customers and 88 
percent of all wireless industry profits. Two companies would 
control most of our Nation's vast wireline infrastructure and 
the critical last mile that Sprint and the rest of the industry 
need to provide affordable rates and quality service. With 
control of nearly 80 percent of the market, the Twin Bells 
could discourage device manufacturers from partnering with 
anyone else for the next generation of smartphones and tablets.
    Two companies would largely control industry pricing. By 
controlling about 80 percent of the market, the Twin Bells 
would have significant unchecked leverage to increase prices 
for voice and data.
    Today Sprint and T-Mobile apply downward pressure to 
pricing, but with this deal, that pressure will diminish. The 
regional providers AT&T refers to as competition have less than 
5 percent of the total postpaid subscribers and cannot 
discipline prices. But beyond what the Bells would control, 
this acquisition actually does very little to provide the 
benefits AT&T claims.
    Consider: Even without this transaction, AT&T has the 
largest licensed spectrum holdings of any wireless carrier in 
this country. But rather than building out its spectrum, AT&T 
is warehousing it. Verizon, which has more subscribers and less 
spectrum than AT&T, just weeks ago stated that it had 
sufficient spectrum to meet its needs until 2015.
    T-Mobile, by contrast, is using its spectrum heavily in the 
same high-demand areas in which AT&T claims to need capacity. 
AT&T does not use the spectrum it has, and adding T-Mobile 
spectrum would not give AT&T the relief it claims to need.
    AT&T already has the spectrum, reach, and resources it 
needs to serve rural America. Adding T-Mobile extends AT&T's 
reach to only 1 percent more of the U.S. population.
    The wireless industry thrives on competition, which in turn 
drives investment, innovation, consumer choice, job creation, 
and U.S. global leadership in communications. If AT&T is 
permitted to devour one of the two remaining independent 
national wireless carriers while the rest of the world achieves 
advances in technology and innovation for the 21st century, the 
United States could go backwards to our last century's Ma Bell.
    I respect Randall and Philipp. They are doing their jobs, 
maximizing value for their shareholders. Unfortunately, there 
are only three beneficiaries of the proposed transaction: the 
shareholders of AT&T, Verizon, and the sole shareholder of T-
Mobile USA, Deutsche Telekom.
    The fundamental problems of a duopoly cannot be fixed 
through divestitures or conditions. In short, this merger is 
unfixable. The only remedy that can preserve competition is a 
vibrant wireless market, and we ask you to just say no to this 
takeover.
    Thank you for holding this hearing today. We urge the 
Department of Justice and the FCC to say no to the irreparable 
harm to competition, innovation, and the U.S. economy that 
could result from this merger.
    I thank you for your time and am prepared to answer your 
questions.
    [The prepared statement of Mr. Hesse appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Hesse.
    Now we will turn to Mr. Meena.

   STATEMENT OF VICTOR H. ``HU'' MEENA, PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, CELLULAR SOUTH, INC., RIDGELAND, MISSISSIPPI

    Mr. Meena. Good morning, Mr. Chairman and Ranking Member 
Lee. Thank you for inviting me to be here today.
    I have been in this industry for over 23 years and, with a 
lot of help, have literally built our company from the ground 
up. The U.S. wireless industry is at a pivotal point, and 
policymakers will determine the fate of the industry with their 
decision on whether to approve AT&T's acquisition of T-Mobile.
    Over the past several weeks, we have carefully reviewed 
this proposed takeover. We can find nothing good about it. It 
is bad for consumers, it is bad for jobs, it is bad for 
competition. If regulators approve this acquisition, all that 
remains is the end game, where the remaining non-Bell carriers 
patiently wait their turn to be acquired or bled dry by the 
biggest two carriers.
    When I began in this business in the late 1980s, there was 
a local duopoly in every market. There are only two cellular 
licensees, which meant that consumers had just two choices for 
wireless service. This also meant that carriers virtually had 
no market incentive to innovate or improve service offerings. 
Therefore, this era is remembered as one of large brick phones 
and even larger customer bills. In a duopoly, the market can 
quickly reach equilibrium, and if both providers are reasonably 
happy with their position, that is how things will stay.
    But by the end of the late 1990s, as Dan referred to 
earlier, the U.S. wireless industry began to awaken when a new 
group of competitive carriers entered this market with PCS 
networks and launched what we refer to as ``the competitive 
era.'' Because competition was important to Congress at that 
time, the FCC auctioned PCS licenses to new entrants, who built 
networks, attracted customers, and just generally disrupted 
established markets. Suddenly, local duopolists were forced to 
respond to competitors with lower prices for service and 
phones, new coverage areas, better customer service, and more 
innovative offerings.
    In order to acquire and retain customers, Cellular South 
had to get creative. We did several things that were 
groundbreaking at the time, such as free nights and weekends, 
free incoming calls, and then after that, unlimited calling. We 
had not done these things before because, quite frankly, we did 
not have to in the era of local duopolies. In this competitive 
era, it was hard work to stay ahead of competition, but those 
that worked the hardest and were the most innovative were the 
ones that were rewarded.
    Unfortunately, all that started to change in the middle of 
the last decade. It was around that time that we began to see 
Humpty Dumpty being pieced together again. Through unfettered 
mergers and acquisitions, it was only a matter of time before 
the former Ma Bell reconstituted herself into two Bell sisters 
of the wireless industry--AT&T and Verizon. Not surprisingly, 
the concentration of market power has led to less choice for 
consumers and routine abuse of market power in an effort to 
prevent competition at every turn.
    AT&T specifically has done just that via exclusive deals on 
handsets that Chairman Kohl referred to earlier, and also they 
have done it by withholding roaming agreements and by 
leveraging its control over device and infrastructure vendors 
to Balkanize new spectrum. This is only possible because 
regulators were asleep at the wheel for much of the last 
decade.
    So now we are at a decision point. As everyone in the 
industry analyzes every aspect of this acquisition, 
policymakers have this question before them: Are we entering 
the era of a nationwide duopoly? Or are we going to provide a 
landscape in which a second competitive era might blossom?
    There is no third option. Either AT&T will be allowed to 
acquire T-Mobile, paving the way for Verizon to possibly 
acquire Sprint, cementing a national wireless duopoly in place, 
or it will not. If this acquisition is approved, policymakers 
must begin preparations to regulate every aspect of the day-to-
day business of the duopolists.
    In a nutshell, that is why this acquisition must be denied 
and why it is in consumers' best interests to chart a new 
course toward a new competitive era of wireless. The fate of 
this acquisition determines the course of our industry. It is 
as simple and as critical as that.
    But, in closing, the very good news is that this takeover 
can be stopped, and you can lay the foundation for a new era of 
wireless competition, an era where jobs are created throughout 
the land, a truly competitive era when a wide variety of 
creative minds are stimulated to deliver affordable broadband 
wireless networks, high-quality, high-speed networks, with the 
ubiquity the people of our Nation deserve and demand.
    Thank you.
    [The prepared statement of Mr. Meena appears as a 
submission for the record.]
    Chairman Kohl. Thank you very much, Mr. Meena.
    Ms. Sohn.

    STATEMENT OF GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE, 
                        WASHINGTON, D.C.

    Ms. Sohn. Chairman Kohl, Ranking Member Lee, members of the 
Subcommittee, thank you for the opportunity to appear before 
you. I would like to set the tone for my remarks with a brief 
video.
    [Videotape played.]
    [Girl] Hi, I'm T-Mobile myTouch 4G.
    [Guy] And I'm an iPhone 4.
    [Girl] Who's your friend?
    [Guy] Oh, its the old AT&T network.
    [Girl] That will slow you down.
    [Guy] That's the price I pay for 3G speed.
    [Girl] Bummer, 4G with T-Mobile lets me video chat 
practically anywhere.
    [Man] Well, iPhone 4 can face time video chat from anywhere 
where there's WI-FI, like say an airport.
    [Guy] You know, you suddenly feel heavier!
    [Girl] The new T-Mobile myTouch 4G: video chat without 
needing WI-FI on America's largest 4G network, T-Mobile.
    [Videotape over.]
    Ms. Sohn. That commercial illustrates the situation we have 
today: a vibrant national market in which four companies feel 
free to sell consumers high-tech services while making fun of 
their competitors. However, if the merger of AT&T and T-Mobile 
comes to pass, the wireless market will be transformed into 
something quite different. We will go back to the days when 
this phone was in use. Only two companies ruled the cellular 
phone market, resulting in high prices for consumers and little 
innovation.
    In 1993, a year after this phone came to market, Congress 
created the wireless market we now enjoy by empowering the FCC 
to auction spectrum and create more competition. That policy 
worked. Prices dropped, innovation exploded, consumers 
benefited. Over the years, industry consolidation has gradually 
eroded that competition, but if this deal goes through, that 
era of competition and innovation will come to an end.
    Consumers know this already. Almost 5,000 individuals have 
written to the FCC in their own words to object to the 
combination of the No. 2 and No. 4 wireless carriers. T-Mobile 
customers are irate. A poll on tmonews, a blog for T-Mobile 
customers, shows that 77 percent, or about 7,300 consumers, are 
opposed to the deal after just a couple of days. After the deal 
was announced, people e-mailed and called Public Knowledge, 
unsolicited, asking what they can do to stop the transaction 
from going forward. More than 1,000 people have signed our 
petition. These are not astroturf campaigns. These are real 
Americans seeking to preserve competition in a lower-priced 
competitor that rates far higher than AT&T in customer 
satisfaction.
    If this merger is approved, two vertically integrated 
companies will control nearly 80 percent of the market. Sprint 
will have just 16 percent and will instantly become a takeover 
target. We should not go back to the future, back to duopoly. 
Worse than duopoly is monopoly, which is what would happen to 
GSM-based wireless services in the U.S. post merger. GSM 
handset manufacturers would be forced to negotiate with one 
national company--the new AT&T and T.
    Applications developers would also be subject to a limited 
non-competitive market. Remember that while T-Mobile was the 
first carrier to sell devices using the open Android operating 
system, AT&T has a history of blocking innovative applications.
    I cannot stress enough that each of the supposed benefits 
of this merger can be accomplished without removing a low-cost 
innovative competitor. If AT&T is concerned about its spectrum 
capacity, it can stop operating three different types of 
networks, an inefficient system which, according to one 
analyst, results in 70 to 90 percent of its spectrum being 
underused. Completely unused is one-third of its spectrum in 
the top 21 markets. Allowing AT&T to buy T-Mobile for the 
purpose of improving its inefficient networks and upgrading to 
4G services would reward AT&T for failing to invest adequately.
    If AT&T wants to bring service to rural areas, it is free 
to do so, and they could do so now without any constraint. 
There are no spectrum shortages in rural America. AT&T is 
planning to spend $39 billion on this merger, money that could 
instead be spent investing in its network and bringing better 
service to more Americans.
    If AT&T wants to create jobs, it can do so without buying 
out a low-cost competitor. One would be hard pressed to find a 
merger that resulted in job growth, and this one will be no 
different as thousands of workers in retail stores, call 
centers, and sales staffs will be let go.
    This transaction is a pivotal moment in U.S. antitrust law. 
If that law means anything, this classic merger of one company 
buying out a smaller competitor in the same business must be 
denied. There are no conditions or divestitures that can make 
this deal acceptable. This merger is unfixable.
    I urge the members of the Subcommittee to oppose this 
merger after reviewing the facts. Thank you, and I look forward 
to your questions.
    [The prepared statement of Ms. Sohn appears as a submission 
for the record.]
    Chairman Kohl. Thank you very much, Ms. Sohn.
    Mr. Cohen.

STATEMENT OF LARRY COHEN, PRESIDENT, COMMUNICATIONS WORKERS OF 
                   AMERICA, WASHINGTON, D.C.

    Mr. Cohen. Good morning, Chairman Kohl and Ranking Member 
Lee and Members of the Subcommittee. I am Larry Cohen, 
President of the Communications Workers of America, 
representing hundreds of thousands of workers in both the 
network and content sides of this industry.
    We look forward to this review by the Congress, the FCC, 
and the Department of Justice, but at the end of these 
inquiries, we believe there are three key points: first, this 
merger represents an opportunity for this country to accelerate 
high-speed broadband deployment; second, the transaction, with 
conditions, can positively impact consumers; and, third, with 
the right conditions, it will increase jobs, both directly in 
the surviving company and in the economic development that the 
broadband expansion can bring to rural America.
    Four years ago, CWA launched our Speed Matters campaign to 
highlight the importance of high-speed broadband for our 
nation's future. High-speed Internet is essential to economic 
competitiveness, job creation, and the quality of our lives. 
Telemedicine, distance learning, and smart grids have enormous 
potential, but they will remain beyond the grasp of tens of 
millions of Americans unless we are able to accelerate the 
development of true high-speed wired and wireless broadband 
networks. The U.S. now has fallen behind 25 other countries, 
including Romania, in the capacity of our broadband networks. 
The President highlighted this in the State of the Union, but 
we have no path whatsoever to closing this gap.
    Our view is that this merger, with conditions and with the 
commitments made by T-Mobile and AT&T, is a critical way to 
bridge the broadband gap that exists between the U.S. and the 
rest of the industrialized world. This is critical for rural 
America and critical for economic development.
    As you have heard, AT&T commits to deploying next-
generation wireless, which is 4G, which delivers speeds of 10 
megabits per second downstream. These commitments would need to 
be included in merger approval conditions, that the 4G wireless 
network would be deployed to 97 percent of the people within 
the next 5 years. This is noteworthy because today only 25 
percent of U.S. broadband subscribers connect to the Internet 
at this speed. Internet connectivity is about data speed. We 
saw that even today with Microsoft's announcement to spend $8.5 
billion to buy Skype. We would like to compartmentalize this 
industry. That is not the way consumers view it. There is data 
over cable, data over wireless, data over wireline, WiMax at 
Sprint is a major investor in clearwire.
    The effects of this merger are especially significant for 
rural Americans, most of whom are on the wrong side of the 
digital divide. We need maps, we need timetables, we need 
investment, we need speeds. Those can all be conditions of this 
merger.
    The real question this transaction poses is not whether T-
Mobile will survive as an independent competitor. As Mr. Humm 
said, T-Mobile cannot be forced to make the investments to 
build a 4G network. 4G is the global standard, and the untold 
story here really is whether Sprint or AT&T acquires T-Mobile. 
And with all due respect to my colleague and friend Mr. Hesse, 
this is an open-and-shut case. AT&T will commit, and conditions 
can be applied on the merger, that absolutely provide when 
investment will be made, what the speeds will be, what pricing 
will be within ranges, et cetera. That is an opportunity this 
country cannot afford to miss. We are falling woefully behind 
in the global economy, partially because of these 
infrastructure needs.
    AT&T has the financial resources to deploy 4G. Sprint does 
not. Sprint uses three different incompatible technologies, 
including the Clearwire WiMax investment, and they have not yet 
integrated their Nextel network. In this case, as you have 
heard, AT&T and T-Mobile have similar and compatible 
technologies, both GSM. Sprint does not. They have three other 
technologies.
    Finally, this merger is good for U.S. workers. Our 
experience in the mergers that formed AT&T Mobility is that 
workers have not lost their jobs in a single case. We believe 
that conditions can be applied to this merger, and the FCC did 
it in the AT&T BellSouth merger in which not only was there no 
loss of employment, there was renewed investment, and renewed 
commitment to the rural South in the BellSouth case. It was 
good for workers. It was good for those communities. We think 
similar conditions need to exist in this merger when it is, in 
fact, approved.
    In the long term, the expansion of AT&T's 4G LTE network 
holds the potential to create thousands of new jobs both in 
this industry and in the rural communities.
    Thank you.
    [The prepared statement of Mr. Cohen appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Cohen.
    We will now start rounds of questions at 7 minutes per 
Senator.
    Mr. Stephenson, one of the major concerns arising, of 
course, out of this merger is what it will mean for prices that 
consumers pay for service. You seek to acquire one of three 
national cell phone competitors, reducing consumers' choice 
from four to three. In addition, T-Mobile has been a price 
leader, in many cases undercutting prices offered by your 
company, Verizon, and Sprint. For example, T-Mobile right now 
offers an unlimited voice, text, and data plan for $35 less 
than the comparable plan of your company.
    So why is it not logical to assume that the loss of T-
Mobile from the national cell phone market will cause 
competition to erode and prices to increase?
    Mr. Stephenson. I will restate just briefly what I said in 
my opening comments, and that is, this is unequivocally one of 
the most competitive industries in the U.S. today, and in terms 
of wireless industries around the globe, probably the most 
competitive around the globe. And one of the best ways to 
evaluate that is obviously looking at pricing, to your 
question. And if you look at just the last 10 years in this 
industry, there has been a number of consolidations. Dan's 
company has participated in some.
    Irrespective of that, over this 10-year time horizon, voice 
pricing in this industry has come down by 50 percent. And if 
you just take a snapshot of the last 4 years, which were in the 
area of mobile broadband, so it is all about mobile data now, 
just in the last 4 years since we launched the iPhone, the 
pricing for a megabite of data on our network has come down by 
90 percent. What is driving that? It is competition. If you 
look at the options for the customer today, regardless of what 
market you are in, 74 percent of the customers in the United 
States, when they go to shop for wireless, have an option of 
five or more wireless facility-based providers.
    So this is a vibrant, active market for competition. If T-
Mobile and AT&T combine, I do not see--history would suggest 
that that does not change the trajectory of pricing in this 
industry. In fact, we are at a situation now, AT&T 
specifically, where we are capacity constrained. T-Mobile I 
know is as well. We have markets where we are within literally 
1 to 2 years of failing to have sufficient capacity to continue 
growing our 3G networks. There is only one by-product of that, 
and that is a pricing or rationing by-product.
    Putting these two companies together unequivocally creates 
new capacity, and we can go into the details of that. But 
putting the two companies together, freeing up spectrum, allows 
us to continue to grow capacity. Capacity is the basis for 
moving prices down in this industry.
    So my expectation is that putting the two companies 
together creates capacity. Prices continue to move down through 
the competitive environment.
    Chairman Kohl. Mr. Hesse, in your testimony you said, 
``Going forward, if this happens, it would be difficult for any 
company to effectively challenge the Twin Bell duopoly even if 
the duopolists reduce quality, raise prices charged the content 
sellers for access to consumers or raise prices to 
customers...'' So if this happens, what is going to--what I 
take your comments to mean is that you have real concern about 
your ability to maintain yourself as a national competitor in 
the market with your 17 percent of the share versus the 80 
percent that the other two companies would comprise, and that, 
in fact, who knows what will happen to your company in terms of 
its necessity to maintain itself, even perhaps someday selling 
out to one of the two majors. Is this conceivable?
    Mr. Hesse. It is conceivable, yes, Senator.
    Chairman Kohl. All right.
    Mr. Hesse. It clearly would make our position more 
challenging competitively. If you put 80 percent of the 
revenues in the hands of two companies, I believe they would 
have pricing power. Given that handsets are purchased, as was 
mentioned earlier, nationally and in bulk, it would give them 
tremendous scale advantages. They would become, if you will, a 
gatekeeper for new applications and OS's, so they would, if you 
will, build it for one of the two Bells, and they would always 
get it first. But because of their size and scale in terms of 
innovation, that would make it more difficult.
    But what this hearing has not discussed and what has not 
been discussed enough is perhaps outside of the wireless 
industry, and that is the vertical integration of the two, and 
that is the control over the last mile. That is a huge piece of 
our cost structure and the cost structure of all wireless 
carriers.
    As was mentioned, I am the Chairman of the CTIA, and one of 
the issues the wireless industry has had is special access. 
What we pay--roughly, if you will, 30 percent of the cost of 
putting in a new cell site goes back to a local landline 
carrier in the form of payments for special access, and those 
rates are very, very high. I believe there is a fundamental 
conflict of interest between--and we see this at the CTIA as 
AT&T and Verizon are able to, if you will, block wireless 
industry initiatives to get the CTIA as a wireless industry to 
oppose and get its weight behind reducing special access 
because of, if you will, the Verizon and AT&T people who are 
not in the rooms, if you will, the landline piece. And as 
prices come down for special access to us, we could make 
wireless service less costly. As wireless service becomes less 
costly for consumers, it accelerates cord-cutting of the local 
landline. So the two Bells do not have an interest in 
accelerating, if you will, this cord-cutting or substitution of 
wireless for wireline services.
    So it does make us more of a takeover target over time as 
the competitive environment gets much more difficult for 
Sprint.
    Chairman Kohl. Mr. Hesse says we go from four to three, and 
then we may go from three to two.
    Mr. Hesse. That is correct, Senator.
    Chairman Kohl. All right. And obviously that is not 
something I believe we want to see happen, Mr. Stephenson and 
Mr. Humm. Mr. Humm, I would like you to respond to that and 
also respond to your comment on spectrum scarcity. Your Neville 
Ray, who is your chief technology officer, this year stated, 
and I quote: ``I think there has been a belief that there is 
spectrum shortage at T-Mobile.'' He goes on to say, ``That is 
not the case in the near term or the medium term. If you look 
at your volume of spectrum that T-Mobile has today, our ability 
to grow in this wireless data space is much stronger than our 
competition. So we are in a good spot, and we do not have a 
shortage of spectrum.''
    Now, you said today you do have a shortage of spectrum.
    Mr. Humm. Yes, I think both things are correct. What Mr. 
Ray was referring to is that we have on the short term 
sufficient spectrum to grow our data revenues. What is not 
mentioned in the quote is that we do not have today, for 
example, enough spectrum to launch LTE in parallel to our HSPA+ 
and GSM networks. So we cannot start the LTE rollout in any 
sense because we do not have the spectrum.
    The other thing that is also important to realize is that 
it has historically taken us between 2 and 3 years to clear 
spectrum which we have acquired. We need spectrum now to be 
able to fulfill the demand of tomorrow. So from that point of 
view, we see ourselves as being spectrum constrained both 
because we cannot do LTE in the medium term, and the other 
constraint we have--and I mentioned that in my opening remark--
is a capital constraint, to basically do it on our own in case 
spectrum would be available.
    Chairman Kohl. OK. We will turn to Mr. Lee now. I just want 
to make the point that if we go from four to three and then we 
go from three to two, that is pretty serious. And we will come 
back to that.
    Mr. Lee.
    Senator Lee. Thank you, Mr. Chairman.
    I would like to start with Mr. Stephenson, if that is OK. 
Mr. Stephenson, some of your critics have noted that AT&T has 
more unused spectrum than any other wireless carrier. So one 
question I have on that point is: Could you tell us why you 
have yet to fully utilize your existing spectrum holdings and 
you are instead seeking to acquire new spectrum through this 
acquisition and others?
    Mr. Stephenson. I will be glad to. As we have discussed and 
as we have said publicly, we are aggressively moving to launch 
LTE, which is the fourth generation of mobile broadband 
technology. This is the technology that will begin to give us 
10-, 15-meg type experiences for the consumer.
    Now, in our industry, we launch technology--and this is a 
very fast moving, innovative industry. Five years ago, we began 
to move from second-generation to third-generation technology. 
To make the move in technology, you have to have a clear block 
of spectrum, nothing in it, to deploy the new technology. We 
began deploying 3G technology, as you know launched the iPhone, 
smartphones, Androids, et cetera. That business is growing 
dramatically, as I said, 8000-percent growth in the last 4 
years.
    We now need to make the move to fourth-generation LTE, for 
a number of reasons--the speed benefits, but also it is just 
more efficient with spectrum. To make that move, once again, we 
have to have clear blocks of spectrum.
    Senator Lee. Unused spectrum.
    Mr. Stephenson. Unused spectrum. Nothing can be in this 
spectrum. It has to be clear, unadulterated spectrum to make 
these moves. To do LTE, because of the data growth we are 
experiencing, we need 20 megahertz of what we will call 
contiguous spectrum combined. We have gone a number of places 
to piece together this footprint to allow this LTE conversion. 
We went into the Government auction. We spent considerably, $7 
billion in the Government auction, to buy 700 megahertz 
spectrum. We call this ``beachfront property'' stuff. That is 
where we are going to put these really high performing networks 
now. We are building into that spectrum now.
    We also acquired a company, Aloha Communications, which had 
a block of this spectrum that we were able to pair together 
with what we bought from the FCC, giving us that 20 megahertz.
    We still have a number of markets where we do not have a 
footprint of spectrum to deploy LTE, so we have been out 
pursuing and buying spectrum the best we can. We do not have 
enough spectrum to deploy this Nationwide, but this spectrum is 
unused today because we are putting--building now as we speak 
the technology into that spectrum that we will begin launching 
mid-year this year.
    Senator Lee. If you were unable to acquire T-Mobile, what 
would your options be as far as developing your 4G LTE network?
    Mr. Stephenson. It is a long-term solution. Most of the 
rural communities that we are speaking to, we would not have 
the spectrum depth to do the conversion that we need. So this 
is one of the big determinants as to whether we can get to a 
lot of the rural communities with our LTE bill. We need 
spectrum in those communities.
    Classic case: They have a very nice footprint in West 
Virginia. That would be a good case. We do not have enough 
spectrum to launch in West Virginia. This would allow us to 
cover a large portion of West Virginia.
    Senator Lee. Is it your position that the Nation would be 
better served by a smaller number of providers with access to 
more spectrum than it would be by a larger number of providers 
each with access to smaller spectrum holdings?
    Mr. Stephenson. You know, that is a public policy question. 
What I would tell you today is there are a number of companies 
out there are aggressively deploying fourth-generation 
technology, and a lot of them are deploying it quickly because 
they are doing leap-frog approaches. A company Dan's company 
owns the majority position in, Clearwire, just building all new 
fourth-generation technology. How can they do that? They do not 
have second-generation and third-generation occupying their 
spectrum with those customers they have to move out. MetroPCS 
is doing a leap-frog technology bill. So you have a number of 
companies--LightSquared. There was an article in the paper here 
this week. They are going to launch in Washington, DC., a 
fourth-generation LTE network.
    So I do not think fewer companies is necessarily better, 
but I do believe if we have a public policy objective of 
getting to 97, 98 percent coverage of mobile broadband with 
these types of speeds and capabilities--that is an additional 
55 million people beyond what our current plan would allow us 
to do--we are going to have to think differently and allow 
companies to make better use and utilization of the spectrum.
    Senator Lee. OK. Let me ask a related follow-up question 
then. There are those who claim that your acquisition of T-
Mobile, if it occurs, will result in a duopoly. I realize that 
you may disagree with that assertion, but I want to ask the 
question. Do you believe that further market concentration is 
likely to result in more regulation of your industry?
    Mr. Stephenson. I cannot judge what happens with the 
regulation. From my viewpoint this is such a hyper-competitive 
industry that additional regulation does not seem warranted or 
likely. We have a history in terms of what happens to pricing 
in this industry. I keep going back. The options available to 
the consumer in this industry are dramatic, and we keep talking 
about going from four to three or three to two. I mean, if you 
just look at the last quarter of results published in this 
industry, we tend to skip over MetroPCS. This is a viable 
large-scale competitor, a competitor that is out there saying, 
``We have people coming to us all the time with new handset 
solutions.'' They added over 700,000 subscribers in the last 
quarter; Leap added 300,000 subscribers; Sprint, a million one. 
This is anything but four going to three or three going to two. 
This is a vibrant, active competitive environment.
    Senator Lee. OK. Thank you.
    Mr. Hesse, some of your public comments have suggested that 
Sprint might not survive an AT&T/T-Mobile merger. Is that your 
position?
    Mr. Hesse. My position is that it would make it more 
difficult for Sprint compete. I have never said that we would 
not survive. But I think in that environment, I think the real 
question is: If this were approved, my view is if people are 
fundamentally making a decision this is a duopoly and it puts 
us in a position, I think, to be acquire.
    Senator Lee. OK. Well, Sprint is currently the third 
largest provider in this industry.
    Mr. Hesse. Yes.
    Senator Lee. It has recently and pretty substantially 
increased its subscriber base. It scores really well on 
customer service satisfaction surveys. It offers a wide array 
of popular products and handsets. It was the first to market 
with a 4G product, and it offers aggressively priced unlimited 
data plans. So in light of those circumstances, what obstacles 
stand in the way of Sprint continuing to play a role as a 
robust and very effective competitor in a post-merger market?
    Mr. Hesse. I think one thing that I mentioned earlier in 
terms of continuing to improve, if you will, the disadvantages 
we have in areas like special access, my ally is going to be 
silenced here who I work with in Washington to try to, for 
example, get access rates reduced. I think, though, at a 
certain time it becomes a bridge too far. And you asked the 
question earlier about regulation, and we traditionally have 
opposed increased regulation by the FCC in the wireless 
industry because we think the market, if competitive, is the 
best form of regulation in the market.
    But recently we supported the FCC's re-regulatory approach 
to roaming, and the reason is because the roaming 
alternatives--in our case, Alltel was purchased by Verizon. 
AT&T bought Dobson and Centennial. So we are already seeing 
signs of more regulation in our industry, and this is the other 
downside as far as, you know, I am concerned about how big the 
pie gets, how robust and vibrant the entire industry is, as 
much as what our relative share is of that industry. And I 
think that with more regulation and less innovation, the pie 
will stop growing as rapidly, and there will not be as much 
investment. So companies would be--you know, financial firms, 
investors would be less willing and interested in investing in 
the growth of Sprint if the wireless industry becomes more 
regulated and does not grow as fast.
    Senator Lee. Potentially leading to less competition. Is 
that your position?
    Mr. Hesse. Yes, it is.
    Senator Lee. OK. Thank you, Mr. Chairman.
    Chairman Kohl. Senator Lee, thank you so much.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman.
    Thank you to all of you. I come at this, first of all, as 
someone who was in private practice for 14 years representing a 
number of different private phone companies and arguing that 
competition was really good for the market and that it would--
both the local market and the long-distance market, that it 
bring prices down, which in many cases it has.
    Second, I come at it as a Senator that also serves on the 
Commerce Committee, has put forward a cell phone bill of 
rights, and has heard time and time again from the cell phone 
companies that that is not necessary because there is so much 
competition that we do not have to worry about things like 
early termination fees being pro-rated because competition will 
bring us there.
    So my first questions are of you, Mr. Stephenson. I wrote 
you a letter, and I know it was just a few days ago, and you 
are getting the answers together. But are you prepared to 
commit to offer your customers T-Mobile's current pricing 
plans?
    Mr. Stephenson. As we have said before, the T-Mobile 
customers will be offered their own rate plans into the future. 
That is our history. We have always done that.
    When you think about the AT&T customers, they have----
    Senator Klobuchar. Will the AT&T customers get T-Mobile's 
current pricing plans?
    Mr. Stephenson. So AT&T customers, my view is if they 
wanted the T-Mobile pricing plans, they have had those options 
for a long time now. Specifically, though, the way this 
industry works is today we sell a $400 iPhone for $50. That 
means we put $350 into a product like that. We ask our customer 
to sign a contract--and you are actively involved; I know you 
are very familiar with this--generally a 2-year contract, just 
to establish a business relationship with that customer to 
ensure that the $350 investment we make, we have some 
opportunity of recouping that investment. So our customers, we 
will ask them to stay with their contracts, and just like we 
will honor the T-Mobile customers' contracts into the future.
    Senator Klobuchar. Well, how about if a T-Mobile customer 
needs a new phone? Let us just say I was a T-Mobile customer, I 
drop my phone into my husband's open coffee cup--which has 
happened.
    [Laughter.]
    Mr. Stephenson. That happened to me, too.
    Senator Klobuchar. And I need a new phone. Would then I get 
to keep my T-Mobile rates?
    Mr. Stephenson. If you get a comparable phone to what you 
had with T-Mobile, our practice is you can stay on those T-
Mobile rates.Senator Klobuchar. How about the monthly customers 
with T-Mobile? Do they get to keep their same rates?
    Mr. Stephenson. I am sorry. The monthly customers?
    Senator Klobuchar. The monthly customers, the people that 
are not on a longer-term plan.
    Mr. Stephenson. OK. Yes, absolutely. What we will do is map 
those rates into our billing systems and allow them to remain 
on those rate plans.
    Senator Klobuchar. So can you say here under oath that this 
is going to lead to lower prices for consumers and a better 
situation for consumers, this merger?
    Mr. Stephenson. I can tell you that history has 
demonstrated that these mergers have traditionally generated 
significant cost synergies and capacity benefits which have 
translated into cost savings in the consumer's pocket. Prices 
have consistently come down.
    Senator Klobuchar. In your testimony you discuss how AT&T 
believes regulatory officials should look at the proposed 
merger on a local or regional level. How many others believe 
the appropriate geographic market is a national one? I 
typically think of the wireless market as a national one, and 
part of my thinking is attributable to the marketing of 
national providers. If you look at your own website and it 
shows that your company likes to sell itself to consumers as a 
national company. I went to your website and found marketing 
material claiming that AT&T's ``national coverage footprint is 
getting even faster with 4G. AT&T already delivers the Nation's 
fastest mobile broadband network.'' And yet there is another 
Web page claiming that AT&T is superior to MetroPCS and Cricket 
because they do not have national networks.
    So I guess my first question is: Does AT&T sell different 
pricing plans for different regions of the country? Or does 
AT&T offer the same prices to customers regardless of where 
they live?
    Mr. Stephenson. It is both. There are a number of markets 
specifically where we compete against--MetroPCS is a classic 
example where we do unique promotions, and Miami would be a 
classic example, where MetroPCS has more market share than T-
Mobile does, according to our estimations today.
    Senator Klobuchar. Sells handsets on a regional or 
statewide basis?
    Mr. Stephenson. Sell handsets?
    Senator Klobuchar. Do you sell your model handsets, 
different handsets, your own----
    Mr. Stephenson. No. We tend to standardize our product set 
and our handset selections across our various geographies. What 
I would tell you is our company is set up--we have literally 
organized this company to compete on a localized basis. I have 
folks who run different regions of the U.S., and I have people 
who run specific cities because I need them responding, I need 
them promoting, I need them advertising and addressing the 
market on a local basis.
    The Department of Justice as well as the FCC have 
historically required us to review these transactions based on 
local markets because that is the way the customer's decision 
is made. The customer goes into a store in Minnesota or 
Wisconsin and makes a decision based on the competitors in the 
marketplace at that time. And so each market is very unique.
    Senator Klobuchar. OK. We will get back to that. I just 
wanted to finish up.
    Mr. Humm----
    Mr. Meena. Senator, could I say something on the regional 
real quick? Because we are a regional company, and we do not 
have any--we have no customers in regional plans. Every 
customer is interested in national plans. That is the way the 
market is driven today.
    Senator Klobuchar. Thank you for clarifying that.
    Mr. Humm, as concentration in the wireless industry has 
increased by almost 32 percent since 2003, capital investment 
has decreased from $25 billion in 2005 to $8.9 billion over the 
first half of 2009. In other words, it appears that less 
competition has led to less investment in new services and 
equipment.
    Do you expect this trend of declining capital investment to 
continue? And how would less competition help this if we have 
looked at the numbers?
    Mr. Humm. We do not expect a reduction of capital 
investment, particularly as the industry is getting ready for 
the next generation of networks, so no.
    Senator Klobuchar. No, what?
    Mr. Humm. Is the answer. No, we do not expect that it will 
lead to a reduction in capital investments.
    Senator Klobuchar. But would you acknowledge there has been 
less investment over time as competition has gone down?
    Mr. Humm. No. As we have stated, we expect that with this 
transaction, as we are overcoming capacity constraints and as 
we are realizing synergies, competition will increase. And with 
the increase in competition, we should also then see 
investments, directly and indirectly in the industry.
    Senator Klobuchar. Ms. Sohn, you had a different view on 
the spectrum issue. I just have a little bit of time left here, 
but could you discuss your view on the spectrum and this notion 
that has been discussed that this merger has to take place 
because of spectrum issues?
    Ms. Sohn. Right. Basically, AT&T has a lot of spectrum that 
has not built out. One-third of its spectrum in the top 21 
markets has not even built out yet.
    Second, it uses the spectrum very inefficiently. It is now 
using three different generations of technologies, and there 
are technologies that they can use right now, and I want to get 
to that 20 megahertz contiguous spectrum that Mr. Stephenson 
said was necessary. That really ignores channel bonding 
technologies that would allow companies to aggregate non-
contiguous spectrum. It also ignores other technologies that 
improve spectrum efficiency, like femtocells, picocells, 
distributed antennas. It also ignores AT&T's ability to 
reconfigure its networks to provide 20 megahertz contiguous for 
LTE. So I think the spectrum crunch, crisis, exhaust is a bit 
overstated.
    Senator Klobuchar. Thank you.
    Thank you very much.
    Chairman Kohl. Thank you very much, Senator Klobuchar.
    Senator Grassley.
    Senator Grassley. As I said in my opening comment, my State 
is rural, and there are some parts of my State where receiving 
consistent telephone service is questionable. And when they do, 
their service is often not as fast as what someone in a larger 
city would receive. And since announcing the merger, AT&T has 
said it would be able to bring faster network to rural areas. 
So for Mr. Stephenson, and maybe Mr. Meena would want to 
comment on this as well, but for sure Mr. Stephenson, how will 
this merger help rural constituents like mine get faster mobile 
service? And, second, rural carriers have to pay fees to the 
national providers when customers travel outside the rural 
coverage area. What effect would the merger have on prices 
consumers in rural areas have to pay?
    Mr. Meena. I will take that one. First--I am sorry, 
Senator.
    Senator Grassley. It does not matter. Either one of you.
    Mr. Meena. OK. First, AT&T has the ideal spectrum today to 
serve rural areas. They have quite a significant holding of 
850, which is a lower-band spectrum. Anything less than 1 
gigahertz is considered low-band spectrum. They have 
significant holdings of 850 and significant holdings of 700 
megahertz. So there is nothing in the T-Mobile deal that makes 
build out rural any more attractive in the future than it would 
be today. So that speaks to the first part.
    And as far as the fees are concerned, one of the biggest 
challenges that we have faced is trying to get a roaming 
agreement with AT&T, especially a data roaming agreement at the 
3G level. Even after the FCC mandated data roaming in their 
order back in April, we have not made any progress toward that. 
Now, April was just last month, but, you know, we have been 
told the roaming person is out of town.
    So to answer your question, it is very important for 
carriers to be able to provide service that allows their 
devices to work anywhere the user goes, anywhere in the 
country, rural, urban. It is awfully important for the voice 
and the data to work wherever they go.
    Senator Grassley. Mr. Stephenson.
    Mr. Stephenson. First, in response to the rural roaming, we 
have a number of 3G rural roaming deals around the U.S. with 
rural providers. The FCC rules have established how that 
process should work, so we are open for business on roaming for 
rural 3G services.
    As it relates to Mr. Meena, he is on a different technology 
than AT&T operates on. I would be glad to talk to you after 
this. I will get something going. But we do not offer CDMA----
    Mr. Meena. We have a GSM property that we have been trying 
to talk to you about for quite a while.
    Mr. Stephenson. How big is that----
    Mr. Meena. We have a GSM property in northern Alabama.
    Senator Grassley. Can you folks negotiate on your own time?
    [Laughter.]
    Mr. Stephenson. As it relates, though, to rural, you know, 
we are going to build out this 4G network. The T-Mobile 
acquisition actually does facilitate places particularly like 
Iowa. I will be very specific with it. As I mentioned earlier, 
there are two blocks of spectrum we want to build this LTE 
infrastructure into. One is this 700 megahertz, the low 
bandwidth. The other is what we call AWS, a higher bandwidth 
spectrum. That is where T-Mobile operates today. That is the 
elegance of this transaction, because with T-Mobile we are 
going to be able to do a number of things--and Philipp 
mentioned a number of them--to free up spectrum. Freeing up 
that AWS spectrum will allow us to bring LTE into that spectrum 
band in places like Iowa. Specifically to Iowa, Senator, we 
will add 181 cities in Iowa to our LTE build. So that is rural 
broadband to 181 new cities in Iowa that would not have it 
otherwise. We are going to focus primarily with our original 
build on rather concentrated areas. This will allow us to build 
out highways, get into most of your rural communities and, 
again, another 181 cities. That number nationwide is 55 million 
people.
    The uniqueness of this, why this is so important, we cannot 
get there because we do not have adequate spectrum to build out 
most of these rural communities. Our original build that we are 
focused on now, it is about 80 percent of the U.S. population, 
that is 14.5 percent of the land mass of the United States. To 
get to 97 percent, that 14.5 percent of the land mass covered 
has to go to 55 percent of the land mass covered. That is where 
this spectrum is so vital and so critical to expanding this 
footprint and getting to rural America. That is why we think it 
is so important.
    Senator Grassley. I think maybe you touched on this next 
point I want to ask, but it is specifically about one part of 
Iowa--Sioux City. That is western Iowa. That service is more 
limited there than in other areas, and T-Mobile does not even 
offer service in that region, which means that there would be 
no real change in the region. What then will the merger do to 
change the economics of providing service to rural America? 
AT&T has yet to upgrade service in these areas already, so is 
it there is just maybe something you cannot do anything more 
for Sioux City as an example?
    Mr. Stephenson. Sioux City is going to require some effort, 
but I think we can do it. And for obvious reasons I looked at 
Sioux City before coming in here, and T-Mobile, their spectrum 
is held largely in a number of partnerships with companies 
around Iowa. I do not know exactly what those look like. We are 
going to have to get in and sort through those partnerships. 
But we need to get our hands--you know, have access through 
some medium, whether partnership or otherwise, to that spectrum 
to provide service on LTE to Sioux City. If not, we have 10 
megahertz. It will take some risk in launching with 10 
megahertz, but I have got a lot of homework to do on this, 
Senator, to know exactly what we can do with Sioux City. It is 
a little complex.
    Senator Grassley. This will have to be my last question, 
and for Mr. Stephenson and Mr. Hesse: In 2008, the Justice 
Department and the FCC approved a merger between Verizon 
Wireless and the rural carrier Alltel. However, approval was 
granted on the condition that the combining companies divest 
spectrum assets in the overlapping markets. What are the 
differences and/or similarities between the present proposed 
merger and the Verizon/Alltel merger? And should spectrum be 
divested in the markets where AT&T and T-Mobile overlap?
    Mr. Stephenson. Dan, do you want to go first?
    Mr. Hesse. First, what is different is this consolidates 
much more power in the hands of two than the previous merger. 
And, of course, the acquisition target is much larger as well.
    The other thing this merger showed is it really actually 
did not do much for the competitive landscape because the 
primary beneficiary or buyer of what Verizon divested was AT&T.
    Senator Grassley. OK. And so you want to add to that?
    Mr. Stephenson. Yes, those Alltel assets that we acquired, 
obviously it was given extensive review by Justice. What we 
acquired there was 850 spectrum, which is where our 3G networks 
do operate. And so that allowed us basically to put our own 
network infrastructure in place in a lot of these rural 
communities that go through Wyoming, Montana, the Dakotas, et 
cetera. So it gave us actually a footprint, network and a 
footprint in those markets where we did not even have a network 
and footprint before.
    We have converted those networks to our technology, our 3G 
technology and our 3G spectrum, and are aggressively converting 
the customer bases now. But that was 3G in nature. What we are 
talking about here is going to facilitate going to fourth-
generation networks.
    If I could, it is relevant to this, but Ms. Sohn keeps 
making the comment about we are utilizing inefficient 
technology. I mentioned it before, but this industry, we launch 
services, and they obsolete very quickly. We launched second-
generation service and by 2006 we are putting in 3G. We cannot 
just go in and take millions of 2G customers off the air and 
require them into 3G, buy new handsets. You know, Dan cannot 
afford to do that; we cannot afford to do that. In fact, if we 
were to do that, I suspect I would be having a hearing in front 
of you for entirely different reasons. But we have to be very 
elegant in how we transition technologies from 2G to 3G and to 
4G, and they take time to work our customers through the 
various technological challenges.
    Senator Grassley. I am done, Mr. Chairman. Thank you.
    Chairman Kohl. Thank you, Senator Grassley.
    Senator Franken.
    Senator Franken. Thank you, Chairman Kohl, for holding this 
very important hearing. I am sure I am not the only one here 
who remembers when Ma Bell controlled how we communicated with 
each other. I distinctly remember when I was a kid, every 
Sunday at exactly 9 a.m. in Minnesota, my grandmother would 
call from New York and talk to my father for precisely 3 
minutes.
    [Laughter.]
    Senator Franken. And, Herr Humm, my grandmother was German, 
and my Dad at 9 a.m. would pick up the phone and go, 
``Liebchen.'' And at 3 minutes that operator got on the phone 
and told her that the 3 minutes was up and the end of the call. 
And that was the only time she got to talk to her son and her 
grandchildren, and thankfully the break-up of Ma Bell forever 
changed the cost of long-distance service. Now we live in a 
world of voice over IP and videoconferencing that would not be 
possible without high broadband speed.
    But I fear that, if approved, the merger would take us one 
more step or just one step away from the monopoly market that 
we had under Ma Bell. It took the Department of Justice more 
than 35 years before they eventually broke up Ma Bell, so it is 
important to keep in mind the stakes of a merger of this size 
and scope. And I hope, Chairman Kohl, that this will be the 
first of several hearings on this proposed merger. We all know 
the merger is going to raise--or I believe it is going to raise 
prices for American families and may costs thousands of jobs, 
and I hope we will hold a second hearing on these consumer 
impacts once we have more solid economic data that demonstrates 
what this merger will mean for customers 5 or 10 or 15 years 
from now.
    Mr. Stephenson, I want to follow up on Senator Klobuchar's 
comments on the national aspect of this deal, and I want to ask 
two questions that I want a yes or no answer to, and then after 
that, I promise I will let you actually respond.
    Mr. Stephenson, when you were seeking to acquire Verizon 
wireless spectrum in 2009, didn't you state that, ``Evidence 
shows that predominant forces driving competition among 
wireless carriers operates at the national level?'' Yes or no.
    Mr. Stephenson. I do not recall.
    Senator Franken. OK. You did.
    Mr. Stephenson. I am sorry. I do not recall the comment.
    Senator Franken. OK. Well, that was not--I said yes or no.
    [Laughter.]
    Mr. Stephenson. But it is an ``I do not know.'' I am sorry.
    Senator Franken. OK. Let us try this one and see if you 
remember this one. And isn't it true that you have seen a 
significant growth in new customers in large part--I mean, you 
do not have to remember this one--because you were able to 
negotiate an exclusive handset deal for the iPhone with Apple, 
a large national company that would not have even considered 
launching their new phone with a small regional player? Would 
that be correct?
    Mr. Stephenson. If you are asking yes on the quote, I do 
not remember the quote.
    Senator Franken. That is not a quote. That is not a quote. 
I am saying, Isn't it true that you have seen a significant 
growth in new customers in large part because you are able to 
negotiate an exclusive handset deal for the iPhone with Apple, 
a large national company that would not have even considered 
launching their new phone with a small regional player?
    Mr. Stephenson. I would say no. I mean, look at Europe. You 
do not want any explanation, but I cannot say yes to the 
whole----
    Senator Franken. No, no. Well, now you can explain. You do 
not think that Apple gave you an exclusive on this because you 
are--they would have given an exclusive to a regional player 
and not to one national player?
    Mr. Stephenson. It is not as likely, but in Europe----
    Senator Franken. Not as likely.
    Mr. Stephenson. In Europe, they did spread it around in 
Europe.
    Senator Franken. OK. Well, my point here is, one, you did 
say the thing that you cannot remember whether you said it. You 
do advertise, as Senator Klobuchar said, as a national company, 
talking about how national you are. So my point is that your 
business is a national business, and that is in large part 
because the wireless market is a national market where you can 
achieve significant competitive advantages from a national 
presence. So my question really is: How can you argue this deal 
should be analyzed locally, as you wrote in your written 
testimony--that this deal should be analyzed locally, which 
goes against the statements that you made before and in your 
advertising that Senator Klobuchar pointed to?
    Mr. Stephenson. I understand your question.
    Senator Franken. Good.
    Mr. Stephenson. First of all, this is the way the 
Department of Justice has required these transactions to be 
reviewed. They have established that these buying decisions are 
made at the local level. Our experience is that the buying 
decision is made at the local level.
    Is having national coverage, a national footprint 
important? I think it is very important. I believe that is why 
Mr. Meena advertises his national map off of his website. That 
is his national coverage map that he advertises, that he has 
national coverage.
    Mr. Meena. Absolutely we do. We have to, to be----
    Mr. Stephenson. But that is----
    Senator Franken. But I would love to see your National map 
compared to his national map.
    Mr. Stephenson. It looks very comparable to that. I mean, 
it looks very comparable. So we all----
    Senator Franken. That is not what I have seen in 
advertising. I have seen your map. Oh, it is a great map.
    Mr. Meena. We are in full agreement it is a national 
market.
    Mr. Stephenson. It would look very similar to that map.
    Mr. Meena. It should be evaluated that way.
    Senator Franken. OK. Well, let us go to Mr. Meena then. I 
am still trying to get my head around all the technologies 
surrounding wireless spectrum, backhaul agreements, which I 
understand is using basically the Ma Bell hard infrastructure. 
Right?
    Mr. Meena. Yes.
    Senator Franken. Roaming agreements, which we had some 
discussion about, and interoperability. But suffice it to say, 
I know that carriers like AT&T and Verizon have really a 
tremendous advantage over everyone else in large part because 
they own and control the infrastructure that was built by Ma 
Bell. Can you explain how this deal will give AT&T an 
unbelievable competitive advantage over smaller companies? And 
have you seen the effects of this over the last 15 years as 
AT&T has steadily gobbled up numerous Baby Bells in an effort 
to return to the dominance they once had as Ma Bell?
    Mr. Meena. Yes, Senator, really to answer some of the 
questions that came up earlier, AT&T and Verizon--but we are 
here to talk more about AT&T today--have used their market 
power to obtain exclusive deals on handsets. There is no doubt. 
I think you mentioned one earlier. I think for that particular 
device it was about a 4-year exclusive period of time. So you 
have handsets. You have the special access issue that Dan 
talked about a minute ago, that huge advantage they have there.
    You have the roaming issue, which AT&T, Verizon, all of 
us--all of us in this industry used roaming agreements to 
ensure that we had a vibrant product for our customers to use 
for many, many years, for decades. And when AT&T and Verizon 
reached a size where it became--it was not in their favor to 
offer those readily, then they began to become--it became very 
tough to negotiate with them on that. And we do have GSM 
technology, like Randall's company does, and we have not been 
able to get a data roaming agreement in place with them. So you 
have special access. You have scale over devices. You have 
roaming issues. Also, next-generation technology, the 
beachfront spectrum that was referred to earlier, 700 
megahertz, that has been Balkanized by AT&T and Verizon where 
there is no interoperability in that band of spectrum. In all 
spectrum before in our industry, there has been 
interoperability. Any cellular device that came out in the 
1980s would work on any network. Any PCS device that came out 
in the 1990s would work on any network. But now, with the 
market concentration that the AT&Ts and the Verizons of the 
world have, they can prevent interoperability across the 700 
megahertz block.
    So those are just a few of our issues, and we are wanting 
to see this industry return to a competitive era once again.
    Senator Franken. Thank you.
    Thank you, Mr. Chairman.
    Chairman Kohl. Thank you, Senator Franken.
    Senator Cornyn.
    Senator Cornyn. Thank you, Senator Kohl.
    I think we can all agree that broadband access has been a 
very positive thing in terms of our country and the world and 
our ability to communicate, our ability to do business, and it 
is just mind-boggling, really, from the days that Senator 
Franken was talking about, his--I guess it was his grandfather?
    Senator Franken. Grandmother. And I remember the days when 
we got all of our video communication through the three 
established channels, and we have come light years, obviously, 
there.
    Ms. Sohn, I remember those telephones, and I for one do not 
want to ever go back to that model. But I do not think there is 
any danger of doing that.
    I think as we approach this and we recognize this is a 
beginning of a process that is not really part of what Congress 
does, we legislate prospectively, not retroactively. We have 
written the law, the laws, as it is and now we have the FCC and 
the Department of Justice doing their job. And we look forward 
to this lengthy process where every side to this argument will 
be able to present their case, and we look forward to reviewing 
that.
    But I think for myself I feel like Congress ought to be 
very humble about our ability to predict the sort of innovation 
that is going to be created, particularly in your sector of the 
economy, and in terms of what sort of structures or rules we 
would apply, because we have seen life change so much and so 
dramatically just over the last few years in terms of 
communications and entertainment and the like.
    So I would just like to ask each of you perhaps--or let me 
start with Mr. Stephenson and Mr. Hesse, to comment on 
innovation. I know one of the concerns is that somehow 
innovation would be stifled or retarded by this merger, and I 
wonder, Mr. Stephenson and Mr. Hesse, if you would give us your 
views on that.
    Mr. Stephenson. Thank you, Senator. One thing that you 
cannot say about this industry is that it has lacked for 
innovation, and the innovation in this industry is happening at 
every layer of service. The infrastructure players and the 
carriers, like all of us up here on this dais, are seeing 
innovation go at an incredible pace--I have already mentioned 
it--from 2G to 3G to 4G in a 5-year period of time. Each of 
those are multi-billion-dollar investments, and that innovation 
is happening very, very rapidly, and we are already talking 
about what comes after 4G.
    Now, you see this innovation playing itself out at the 
device level. There are 600 options for customers today to buy 
devices in the marketplace, and to actually think of an iPhone 
being launched in 2007 and today the customer can buy one for 
$50, that is innovation. And when the iPhone came out, what 
happened? You saw Google begin to deploy new, innovative 
devices, which Dan's company is one of the first--I think you 
deployed the first Android-based device on fourth-generation 
networks. So you are seeing that innovation run hard, and 
particularly at the software level.
    Now you are seeing RIM and BlackBerry with new OS's. You 
are seeing Microsoft and new OS's. And do not forget or do not 
miss the importance of what you read yesterday of Microsoft 
buying Skype. They run a very important wireless operating 
system that they have developed, combining that with a voice 
over IP capability now.
    This is going to be a very exciting and dynamic 
manifestation here. We are seeing applications hit the market 
at hundreds of thousands at a pace, being downloaded billions 
of times.
    And so when I stop and just think about this kind of 
innovation cycle, by virtue of T-Mobile and AT&T combining, I 
suspect Mr. Jobs will not delay 1 day the launch of his iPhone 
5 or 6 or whatever number comes next. I do not think it will 
affect his launch by 1 day of the next iPad. I do not think it 
will slow Google down one iota in terms of developing the new 
OS capabilities coming, or Microsoft. I do not think the 
infrastructure players are going to slow down, and Dan has done 
an incredible job bringing the first true 4G network to the 
United States. I do not see Dan slowing down as a result of T-
Mobile and AT&T coming together.
    This is as dynamic and exciting an industry as one could 
ever hope to work in. I consider it a privilege. But I do not 
see that changing by virtue of our combination.
    Senator Cornyn. Mr. Hesse.
    Mr. Hesse. Senator--thanks, Randall, for the plug on 
Android, anyway, but I actually have to give credit to this 
innovator over here. T-Mobile USA launched the first Android 
device, and they would be, of course, removed from the market. 
We followed them shortly thereafter.
    A very short history of innovation in the wireless 
industry, because I have been in it for a long time. The U.S. 
led the world in 1G, first generation, which was analog. That 
was the first cell phone called. It was invented at Bell Labs. 
We had U.S. companies like Motorola, and we had this duopoly. 
And it was important for the U.S. Government to respond and 
create more competition because we fell behind Europe. Digital 
technology, GSM, that was European, so we fell behind because 
of the lack of innovation in the U.S. wireless market, really 
had not innovated very much at all because it was a duopoly.
    They opened up the U.S. market to more competitors, PCS 
providers. I disagree with Larry in terms of kind of where we 
stand in the world from a wireless point of view, and I gave 
this presentation as Chairman of the CTIA, the U.S. wireless 
association. The U.S. is now No. 1 in the world in terms of 
wireless technology. We have the most 3G customers of any 
country in the world. We are the first with 4G. We are, by far, 
far ahead in 4G.
    The companies that Randall talked about--Google and Apple 
and Microsoft, and all these innovative companies--they have 
developed on our shores for a reason, because this is a very 
vibrant market. My concern is if we go back to the duopoly, we 
will go back to pre-mid-1990s, and the U.S., in fact, will fall 
behind the world again like we once did. We will lose that edge 
that, you know, we have regained, if you will, over the rest of 
the world.
    Senator Cornyn. Let me ask one--my time is running out 
quickly here. Just one other topic. I think, Mr. Humm, you 
mentioned that T-Mobile did not have the capital to do the sort 
of infrastructure investment, which is one of the issues that 
motivated your company to engage in this acquisition, this 
merger.
    Mr. Stephenson, you talked about how much money AT&T has 
invested in broadband infrastructure. I remember that when the 
Congress passed the stimulus legislation, there was $7.9 
billion included in that because of the desire of Congress to 
see somehow a buildout and expansion of broadband for all the 
reasons we understand and we have talked about here today. My 
personal preference would be to see the private sector make 
those investments, not the taxpayer have to make those 
investments.
    How does this merger affect, either positively or 
negatively, the ability of companies like yours to make that 
sort of investment? It strikes me this is a problem, and I 
would like to hear your views? Mr. Stephenson first.
    Mr. Stephenson. I will go back to the President's comment: 
establishing a public policy objective of 98 percent of America 
covered with mobile broadband capability. The elegance of this 
is this is a private market solution for a major public policy 
objective. This is all private capital that will be used to 
build this capability out. There will not be any universal 
service money, any subsidies, any taxpayer money involved in 
making this happen. This can become a reality purely with 
private capital.
    If you think about getting to 97-percent coverage, that 
means there is 3 percent of the U.S. that we still do not have 
the ability to cover through private market capabilities.
    If you think of the Universal Service Fund and the FCC's 
priority for finding a mechanism for getting broadband to 
America, focusing on the 3 percent is a much more manageable 
objective than the 20, 15, or even 10 percent that we are 
talking about now.
    So this is just a very elegant potential to address a 
public policy objective with private capital.
    Senator Cornyn. Mr. Chairman, with your permission, could I 
get Mr. Hesse to respond, please? Go ahead, sir.
    Mr. Hesse. Senator, I made points earlier where we do not 
believe this merger facilitates this goal in any way. But even 
if you believed it were the case, at what cost? Is it worth 
eliminating a very robust, competitive, extremely important 
industry to the U.S. economy in order to achieve that goal? And 
I think the answer is no.
    Senator Cornyn. Thank you, Mr. Chairman.
    Chairman Kohl. Thank you very much, Senator Cornyn.
    Mr. Humm, in its filing with the FCC on this deal, AT&T 
states that it ``does not view T-Mobile USA as a close 
competitor let alone as a major competitive threat.'' My view 
is that this statement is incorrect given the large amount of 
competition that we see every day between these two companies. 
What is your view of that statement, Mr. Humm? Does T-Mobile 
view AT&T as a competitor?
    Mr. Humm. We see overall the marketplace to be a very 
vigorously competitive marketplace. We define ourselves as a 
value competitor, meaning we compare ourselves mainly with 
companies like Sprint or what we call the ``all you can eat'' 
players, like Metro, Leap, and U.S. Cellular.
    Chairman Kohl. Now, look, you two are competitors, right? I 
mean, please. You two are competitors.
    Mr. Humm. We are competing in the same markets.
    Chairman Kohl. You two are competitors. Mr. Stephenson, T-
Mobile is a competitor. You are competing with that man every 
day. Is that correct?
    Mr. Stephenson. Yes, they are part of the competitive 
ecosystem in wireless technology. We are all competing.
    Chairman Kohl. I appreciate that, but you two are major 
competitors. That is almost incontrovertible. It does not mean 
that you do not have other competitors. We understand that. But 
you two are major competitors with each other. Please.
    Mr. Stephenson. Senator, yes, sir, we are.
    Chairman Kohl. OK. Mr. Humm, on your Website you compare 
your prices for data service to AT&T's and announced that your 
price for unlimited 4G data service is $5 cheaper than AT&T's 
price for 3G service. You also promote the fact that your 
unlimited voice, text, and data service is $35 cheaper than 
AT&T. This is pretty good evidence that you view AT&T as a 
competitor. Is it not, Mr. Humm?
    Mr. Humm. We compare ourselves--in the advertising you are 
referring to, we show the customers the savings they can make 
relative to being at Sprint, and we show that there is 
significant----
    Chairman Kohl. Well, that is what we do with competition--
--
    Mr. Humm. And AT&T and Verizon, because that is where the 
biggest savings are.
    Chairman Kohl. Of course.
    Mr. Stephenson, how can you say that T-Mobile is not a 
close competitor? You both sell the same service, cell phone 
service on a national basis, and T-Mobile and you are the only 
two of the four companies that own and operate national phone 
networks. Is it really credible to come up here and sit here 
and tell us that you and T-Mobile are not close competitors?
    Mr. Stephenson. They are not our competitive focus. I will 
tell you that. If you look at just the last quarter, you can 
establish where our competitive focus is--Verizon adding over 
900,000, Sprint adding over a million, MetroPCS adding over 
700,000, Leap adding over 300,000. T-Mobile lost customers in 
the first quarter. They are not our competitive focus.
    Chairman Kohl. Mr. Stephenson, consumer advocates like Ms. 
Sohn argue that one of the motivations for this deal was to 
remove the price competition offered by T-Mobile in the cell 
phone market. Do you deny that removing T-Mobile as a price 
competitor was not at least one element of your motivation for 
spending $39 million to acquire this company? Mr. Stephenson.
    Mr. Stephenson. Yes, I do deny that, Senator. That does not 
factor into the equation. Again, the focus of our competition 
right now is at the high end of the market because, frankly, we 
are limited in capacity. We only have a certain amount of 
capacity to put customers, and so we get very focused on what 
customers we go after.
    I will tell you, if we were to get this transaction done 
and we increase the capacity in the marketplace, that gives us 
an opportunity to move down market, and we are looking very 
much forward to competing against MetroPCS much more 
aggressively.
    Chairman Kohl. All right. Mr. Stephenson, AT&T has argued 
that it is incorrect to consider this merger a reduction of 
four to three competitors in the national market. Instead you 
argue that we should examine this merger on a local market-by-
market basis where in many cases there are other local or 
regional cell phone providers. I find that your claim that this 
merger should be analyzed on a local market basis remarkable as 
this is directly opposite to the position that AT&T and your 
predecessor companies took in prior mergers.
    In its FCC filings, AT&T Wireless argued that its 2004 
merger with Cingular ``should be analyzed as national,'' and 
AT&T argued in its 2008 merger with Centennial that, ``The 
evidence shows that the predominant forces driving competition 
along wireless national carriers operate at the national 
level.''
    Why has AT&T now changed its position? Which is true, what 
AT&T said in 2004 and 2008 or what you are saying now?
    Mr. Stephenson. Senator, we have to go by how the DOJ and 
the FCC have evaluated these transactions consistently, and 
they have consistently evaluated them at the local level. And 
at the local level, these are intensely competitive markets. In 
your State, in fact, in Wisconsin specifically, one of the 
regional carriers, U.S. Cellular, has a greater market share 
than AT&T and T-Mobile. So these purchasing decisions are made 
at the local market level.
    Chairman Kohl. You know--and I will turn this over to Mr. 
Lee--you would almost argue here to us today that what you are 
wanting to do is something in the national interest. And that 
is OK. I mean, you are here to run a business, and I am a 
businessman myself, and I appreciate it. But this is a business 
deal. This is a business deal to make your company more 
successful and more profitable. And I understand that. We all 
understand that. But, you know, we should discuss it in that 
context, not in the context of this is in the national 
interest. This is not your consideration. Your consideration is 
what is best for your company and for your company. And I 
appreciate that. But the discussion should be, in my opinion, 
handled on that level rather than try and say this is something 
in the national interest.
    Anyway, Mr. Lee, go ahead.
    Senator Lee. Thank you, Mr. Chairman. I have a few 
questions for Mr. Meena.
    I assume that, like other regional carriers, your company, 
Cellular South, relies to a considerable degree on roaming 
arrangements with national networks and that this is part of 
what enables you to have the ability to offer your customers 
access to nationwide coverage.
    In your view, what impact, if any, would this merger have 
on these roaming arrangements?
    Mr. Meena. Yes, sir, that is a good question. One of the 
major impacts it would have, it would eliminate a potential LTE 
roaming partner. A few months ago, prior to the announcement of 
AT&T and T-Mobile, T-Mobile made an announcement that I think 
by 2014 they would be installing an LTE network. LTE is the 
next generation, the worldwide standard that many carriers 
throughout--most carriers throughout the world will be going 
to. Without having a vibrant LTE roaming partner, one willing 
to work with us on a roaming agreement, it eliminates the 
ecosystem that you referred to that we must have in a roaming 
environment. So that is one effect of that. Also----Senator 
Lee. And you see that as an unavoidable consequence of this 
merger?
    Mr. Meena. Yes, I do. If it happens, right.
    Senator Lee. Would the recent FCC order mandating 
commercially reasonable data roaming agreements alleviate the 
concerns that you have in this area?
    Mr. Meena. It would not because of what is going on with 
the 700 interoperability issue in our industry today, where 
AT&T has a proprietary band class and Verizon has a proprietary 
band class. So even with the roaming mandate, we are not able 
to have LTE devices that would work on their network in a 
roaming environment or work on Verizon's network in a roaming 
environment. That is why it would be so important to have T-
Mobile or someone else out there with a 4G LTE network that we 
could have the ability to roam.
    Senator Lee. Would any potential merger conditions 
alleviate the data roaming concerns you have that you have 
identified?
    Mr. Meena. I cannot think of any. We were hopeful that with 
the Alltel/Verizon merger there would be conditions that would 
make the market competitive for us, and that did not occur. We 
do have a roaming agreement with Verizon. I cannot go into the 
specifics of that agreement, but it is not one in which--that 
would allow us to be competitive over a long period of time.
    Senator Lee. OK. Mr. Stephenson, would you care to respond 
to this point, particularly the point about the inevitability 
of the problem he identified?
    Mr. Stephenson. Yes. I am confused with Hu's point that we 
need to keep T-Mobile in play because that will give them an 
option to roam on an LTE network when T-Mobile has stated they 
are not building an LTE network and they do not have the 
spectrum to build an LTE network. So it does not seem that it 
is a likely fix for whatever concern that Hu has.
    In terms of LTE, obviously the FCC data roaming order will 
require us to open our networks for others to roam on them. 
There is nothing to preclude Hu from going out and buying a 
handset that works on our spectrum in our system. That is his 
prerogative. I think what Mr. Meena would like to do is require 
us to make our handsets roam on his system, and that is a cost 
that I do not understand why our customer needs to incur. And 
at the end of the day, I understand Mr. Meena's concern with 
this because we are going to build out a competitive LTE 
network to his network. This is competition. This is what we 
are looking for, more competitive networks being built. And 
having a concern that we build ours out and that we will not 
roam on his network, I do not quite grasp the logic of that. 
But we will open our network up for Mr. Meena and all other 
companies to roam on ours.
    Mr. Meena. That is just not correct. We are not looking for 
AT&T to roam on our network, on our LTE network in the future. 
We would like to have the ability to roam on theirs. But 
because of this interoperability problem and the scale that 
AT&T and Verizon have, the scale that they have to control the 
device ecosystem, we do not have enough buying power to be able 
to put in place a 700 megahertz device that would roam within 
their band class.
    The reason this has not been a problem in the past is that 
in the cellular spectrum and in the PCS spectrum, all devices 
worked across all band classes within each spectrum grouping, 
and that is not the case here where AT&T has their own 
proprietary band class and Verizon has theirs in the 700 LTE 
spectrum.
    Senator Lee. So are you calling for us to go back to the 
1990s where you had this complete interoperability? Is that----
    Mr. Meena. We have been calling for that for a couple of 
years. We have been wanting the FCC to act on that. We have had 
a petition in front of them for at least 2 years now, I 
believe, something close to that. So that is something that we 
would like to see, interoperability in the 700 megahertz among 
an all paired spectrum, just like it happened in cellular and 
just like it happened in PCS.
    Senator Lee. OK. Now, in referring to this merger in your 
written testimony, you said, ``It must be stopped,'' and, ``The 
fate of this acquisition determines the course of this 
industry.''
    In contrast, there are other regional providers that view 
the situation with more hope than you do. U.S. Cellular has 
stated that it sees great opportunity for the merger, looking 
at its own expansion opportunity. MetroPCS has said, ``We think 
that this is a really good time for Metro to put our head down 
and get down to business,'' noting that the company very well 
could get a sharper focus from its infrastructure vendors, and 
that there would be one less operator for them to focus on.
    Help me understand why some of these regional carriers 
would view the merger as the end of competition or as the end 
of the world as we know it, the competitive Armageddon, so to 
speak, while others view it as an opportunity for growth.
    Mr. Meena. I am not familiar with those quotes that you 
said. I am not doubting you. I am just not familiar with those 
quotes. But I am familiar with this: Both United States 
Cellular and MetroPCS are active members of the RCA, of which I 
am the chairman of the board, and RCA has taken a position that 
we are against this merger.
    Senator Lee. OK. Thank you, Mr. Chairman.
    Chairman Kohl. Thank you, Senator Lee.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman. Thank 
you, everyone.
    Mr. Meena, you broke in when I was asking Mr. Stephenson 
about the national market issue. Do you want to elaborate a bit 
on that?
    Mr. Meena. Yes. It is a national market. That is why we 
publish a map like that that shows the roaming arrangements 
that we have. I cannot remember how far back it would be when 
the customer asked us about a regional plan. It is just a--we 
happen to be a regional company in a national business, and 
that is what makes roaming agreements, et cetera, so important. 
But this deal should be evaluated on a national basis. Market 
by market makes no sense in today's environment. And I admit, I 
am not an antitrust lawyer, but from a business perspective, it 
makes no sense. It is all about national market.
    Senator Klobuchar. Thank you.
    Mr. Stephenson, I know when we talked in Senator Kohl's 
Subcommittee about the Delta/Northwest merger, I cared a lot 
about that because we had a lot of Northwest employees in 
Minnesota, and I know that there are a lot of employees out 
there that are concerned about how this merger will affect 
them. Could you comment on the employment levels, what you see 
how this will affect current employees of both companies?
    Mr. Stephenson. Yes. Overall, with the CWA, Teamsters, SEIU 
yesterday, AFL-CIO, have all come out in support of this 
merger, and their track record is one of not supporting any 
issue that is not what I would call job creating in our 
industry, which it is not unique. You only hire where and when 
you invest. And where we are deploying and where we are 
investing are the areas where we are hiring. That today is 
mobility and it is broadband, and this particular deal, this 
particular transaction, we have made a public commitment and we 
are going to abide by this public commitment to deploy LTE. 
And, Senator, it is a public policy objective, but it is in our 
shareholders' interest to deploy this National LTE network. It 
is an incremental $8 billion of investment to deploy this 
capability and this technology.
    So we view this as an incremental investment and over the 
long haul an incremental jobs opportunity at the go-down. These 
types of transactions, you do have overlaps and workforces. We 
are not going to need long term two finance organizations, we 
are not going to need two marketing organizations. We have done 
this a number of times. We think we have very elegant processes 
for making this happen.
    And, in fact, Larry Cohen and I over the last 5 or 6 years 
have developed what we think is a very unique, very time-tested 
ability of dealing with these types of situations. We 
negotiated, literally, the two of us together, a concept we 
call JOG. It stands for job offer guarantees. And so if there 
are situations where there is overlap of jobs or a particular 
business is shrinking and you need to downsize, we declare 
those positions surplus--we declare them surplus, but we do a 
job offer guarantee. We find a growth area of the business or 
another part of the business where we need to hire, and we give 
those employees opportunities to take those jobs in those 
areas. That has allowed us to manage our workforce we think 
very elegantly and very gracefully move it out of the no-growth 
areas into the growth areas.
    Senator Klobuchar. OK. Let us go back to some of the 
consumer issues in a different context. According to the data 
collected by the FCC, in 2008 and 2009 AT&T accounted for 
nearly half of all exclusive smartphone launches compared to 
their one-third share of overall smartphone launches. This data 
just confirms what most people already assume: that AT&T has 
committed itself to using exclusive phone contracts to attract 
customers.
    If this merger is approved, not only would AT&T have 44 
percent of all U.S. wireless subscribers, but AT&T would be 
able to demand exclusivity contracts from any phone maker 
seeking their business because of that enormous market share.
    Do you think that is a fair reading of the situation? And 
are you going to make any commitments about these exclusivity 
agreements going forward?
    Mr. Stephenson. When I look at 600 different options of 
handsets in the marketplace today, it tells me this is a 
vibrant marketplace. I think every carrier up here at one time 
or another has probably had some kind of exclusive arrangement. 
That is a means to get product to market faster, and when the 
marketplace is utilizing these capabilities, we will probably 
participate as well. But I think you are seeing fewer and fewer 
of these long-term type relationships.
    Senator Klobuchar. So your answer is that the relationships 
are going down, but that you are not going to make any 
commitments about the merged company, the proposed merged 
company with exclusivity contracts?
    Mr. Stephenson. It is a dynamic market. I mean, this is a 
hyper-dynamic marketplace.
    Senator Klobuchar. Senator Lee mentioned this roaming 
agreement issue. Will AT&T commit to offering smaller wireless 
carriers data roaming agreements at reasonable rates?
    Mr. Stephenson. Absolutely. Of course we will. It is the 
law.
    Senator Klobuchar. OK. Very good.
    Mr. Meena, you look like you want to comment.
    Mr. Meena. Yes. Well, Randall offered earlier that we can 
meet outside the door and talk about that roaming agreement. I 
look forward to talking with him about it because we have been 
trying to talk with this company about a 3G GSM roaming 
agreement. So maybe we will be able to work that out later on.
    Anyway, that is all I have to say.
    Senator Klobuchar. OK. Ms. Sohn, how does the concentration 
in this industry with this proposed merger compare to other 
large industries with high barriers to entry, like airlines or 
automobile manufacturers?
    Ms. Sohn. Well, it is about half. I mean, this industry 
would be twice as concentrated at the top two than the airline 
industry, the banking industry, the oil industry. So the 
concentration here--and if you look at the Herfindahl-Hirschman 
Indexes both locally and nationally, in some places with this 
merger it is over 3,000. In some markets it will go six--I 
think in the national market it will go 600 to 750 points 
higher, and the Department of Justice says that 200 is an 
anticompetitive increase. So when you compare it to other 
industries, it is off the charts.
    Senator Klobuchar. In Canada, only three companies dominate 
the wireless market. If the merger goes through, can we expect 
a similar situation, in your view? And what lessons can we draw 
from Canada's wireless market?
    Ms. Sohn. I have to say I am a little bit bemused by folks 
looking at other countries and saying, well, those countries 
are more concentrated, so why shouldn't we get more 
concentrated? But they have to remember that many of those 
countries are--the telcom providers there are highly regulated. 
There is price regulation. There is wholesale access 
regulation. The carriers--does Mr. Stephenson want to go back 
to that? I really, really seriously doubt that.
    On the whole, U.S. citizens pay more, and I do find it 
ironic, since every time there is a study that shows that the 
U.S. is 25th or 20th in broadband adoption and in value, the 
carriers say, Oh, no, no, those are all wrong and the countries 
are all different. You know, they are different, they are 
rural. But here they want to look internationally. I find that 
a supreme irony. I do not think we want to go there. I think we 
want to stick with competition rather than regulation.
    Senator Klobuchar. Just understand--you are from 
Minnesota--we can see Canada from our porch.
    [Laughter.]
    Senator Klobuchar. Anyone else want to comment on the 
international comparison?
    Mr. Cohen.
    Mr. Cohen. Yes. First I want to point out that when I 
talked earlier about where the U.S. is in global broadband, I 
am talking about the totality of the industry. So what is the 
industry? It is not a wireless industry per se. It is wireless/
wireline. It is well documented in the FCC report last year 
about the U.S. lagging other countries. So, again, I disagree 
totally with Dan on that. We are far behind. We are getting 
further behind every day. Countries like Korea we will not 
catch up to in our lifetime. It is particularly true in rural 
Minnesota, rural Wisconsin, or rural Utah, the kind of 
broadband speeds that are available are unthinkable in most of 
the other OECD countries.
    So I think that from our point of view, No. 1 is: What is 
available to U.S. consumers in terms of economic development? 
And is there a way to have conditions on this merger that will 
deal with the fact that the U.S. is absolutely falling behind 
all the time in terms of broadband speeds, regardless of what 
mode we are talking about. That is a large part of the reason, 
the primary reason, we think the merger is that kind of an 
opportunity and, again, with safeguards and conditions, why we 
should go forward.
    Senator Klobuchar. And just the one thing that disturbs me 
there--and I am sure we can do some more discussions about this 
with everyone on the panel after this hearing, but it is just 
those numbers that show that the investment has gone down in 
recent years while competition has gone down. And so no one 
wants more than me to stop having dropped calls in Stapes, 
Minnesota, and stop having to carry two different kinds of 
phones to hope that one of them will work when I am on the 
road. But I am not convinced that less competition is going to 
bring us there.
    Ms. Sohn. Could I just add that AT&T has in 2009 invested 1 
percent of Cap X in its wireless infrastructure while Verizon 
has invested 10 percent of Cap X. And it is interesting to note 
that Verizon is not complaining nearly as much about the 
spectrum crunch.
    Senator Klobuchar. And Verizon has less spectrum, is that--
--
    Ms. Sohn. Right. And it is interesting. Craig Moffett, who 
is a very well respected industry analyst, has called AT&T a 
``serial acquirer.'' All right? And that is what they are. They 
acquire new companies. They do not invest adequately. And that 
is why they are having the problems they are having today.
    Senator Klobuchar. OK. I think Mr. Hesse wanted to add 
something, and if you do not mind, Mr. Chairman, I think we 
will let Mr. Stephenson----
    Mr. Hesse. I want to respond to Larry's comments because I 
think we are mixing up apples and oranges.
    In the wireline world, wireline broadband access, dominated 
by AT&T and Verizon, we are behind the rest of the world.
    In wireless, we are well ahead. We are the leader. And that 
is a very important distinction.
    Senator Klobuchar. OK. Thank you.
    Mr. Cohen. The issue is that for rural America there is no 
wireline opportunity. So as the President said in the State of 
the Union, this is the opportunity for rural America to catch 
up.
    Senator Klobuchar. OK. Thanks.
    Mr. Stephenson, did you want to reply?
    Mr. Stephenson. Just the investment issue. I will say it 
again. AT&T has invested more in the United States than any 
other public company, much less any other telecommunications 
company, $75 billion in the last 4 years. The 1 percent, I do 
not know where that number comes from. Last year we invested 
about $9 billion, $8 to $9 billion, just in the wireless 
business by itself. Then there is obviously what we call fixed-
line investment, backhaul, and IP backbone capacity and so 
forth that are serving the wireless business. But the statement 
is inaccurate, and we have invested more in the U.S. than any 
other public company.
    Senator Klobuchar. OK. Thank you.
    Chairman Kohl. Thank you very much, Senator Klobuchar.
    One last question for you, Mr. Stephenson. Some say that if 
the merger is approved, it is likely to be approved with a 
number of conditions. I think that is probably undoubtable. 
But, Mr. Stephenson, would you accept as a condition of the 
merger a prohibition on AT&T from using any Universal Service 
Fund money for a broadband buildout?
    Mr. Stephenson. For this LTE buildout, yes, sir.
    Chairman Kohl. All right. Anybody want to make any comments 
before we close this hearing? Yes, Ms. Sohn.
    Ms. Sohn. Can I just make a comment about the national 
versus local market because this was driving me crazy. Have you 
ever seen AT&T advertise against MetroPCS or Cricket? Have you 
ever seen a local pricing plan? I mean, clearly, saying that a 
behemoth like AT&T competes against--sorry, Cell South or U.S. 
Cellular or Cricket is like saying that Walmart competes 
against the mom-and-pop store. Yes, you know, has the Justice 
Department looked locally in the past? Yes. That is the past. 
But we have an increasingly consolidated market. We have a 
maturing market. And, in fact, the FCC and the Alltel merger 
and Centennial mergers actually did start to look at the 
national market.
    So, clearly, the market here is national, and I suspect 
that the Department of Justice and the FCC will look at that 
based on the facts of this case. This is an unprecedented 
merger.
    Chairman Kohl. Mr. Hesse.
    Mr. Hesse. Senator, I would like to add to this because I 
have not commented on the issue of national markets. I can 
speak for Sprint, and I do not think we are that different than 
the Big Four: 99.7 percent of all of our customers are on 
national rate plans. That is more than the Ivory soap 
percentage.
    [Laughter.]
    Mr. Hesse. 99 percent of our advertising is national. Our 
handset deals are all national. Business customers buy 
national, and they want to see the maps. If you look at 
national advertising, what are the key messages? We cover 97 
percent of all Americans. In Verizon, it is the Map War. Those 
are not county and State maps. Those are national maps they are 
showing on television.
    Also, from a retail distribution point of view, we sell 
more of our devices through the national retailers--Best Buy, 
Radio Shack, Walmart, et cetera--than we do through our own 
stores. So if this is not a national business, I do not know 
what is.
    Chairman Kohl. Good. Mr. Humm.
    Mr. Humm. Maybe just also one last comment to national 
versus regional. At T-Mobile we were nationally oriented up to 
last year, and we decided to move to a regional market model 
because we simply noticed that the regional differences are too 
big for us to be successful only nationally. So we went to an 
organization where we now have 23 different regions to really 
approach the markets region by region.
    Just a few facts to support that point. Just take, for 
example, a company like Metro, they have in Miami, the DMA of 
Miami, 25 percent market share; in other markets they have zero 
percent market share. Take Sprint. They have 49 percent in 
Jonestown, Pennsylvania, and in South Dakota they have zero 
percent market share. Take T-Mobile, we have 21 percent in Salt 
Lake City, and we have zero percent in West Virginia.
    So that simply shows you how different we are and what kind 
of different competition we face from one DMA--from one 
market--to the other.
    Chairman Kohl. Good. I want to thank you all for being here 
today. It took a lot of your time and effort and energy, and it 
is a very important issue, so your coming here does serve the 
national interest, and thank you for being here. Thank you all 
for being here.
    [Whereupon, at 12:27 p.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]





                                 
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