The AT&T/T-Mobile Fine Print

Anyone who has a service contract with AT&T knows that there are two parts: the advertisement and the fine print.  The advertisement promises all kinds of wonderful things. The fine print explains how AT&T really has no legal obligation to provide them, and you have no recourse if AT&T doesn’t live up to its terms. The ad has a little asterix (*), to let me know to look for the fine print. For example, AT&T recently offered me a free 4G phone*. *DISCLAIMER: Provided I sign up for a minimum $15 data plan, 4G is available in limited areas, and other restrictions apply. They also promise I can download amazing videos*, DISCLAIMER: *provided I don’t exceed my capacity cap, in which case I will pay lots more money. Etc.

Unsurprisingly, the AT&T/T-Mobile deal comes with its own set of fine print. AT&T and its allies make all kind of promises about how the deal will encourage mobile broadband and create jobs ‘n stuff, while the actual FCC filings have all kinds of wonderfully crafted (from a legal perspective) fine print that explains all the limitations on these promises. Alas, AT&T doesn’t do nearly as good a job with the helpful* for fine print on it’s advertisements for approving A&T/T-MO as it does on its regular advertisements. I want to especially point this out to all the state governors that have supported the merger based on the advertising implying that the mighty AT&T lion is going to go all Aslan and spread broadband and jobs after it devours the sickly gazelle that is T-Mobile.   Based on the fine print, you have as much chance of seeing rural broadband deployment and job creation as the average AT&T iPhone user in San Francisco has of connecting a call and enjoying “unlimited downloads”* (*subject to bandwidth cap, phases of the Moon, and wicked packet-intercepting gremlins).

Advertising matched with FCC filing fine print below . . .

AT&T Will Build Out Its 4G Wireless Network To 97% of the Public Using Only Private Capital,* If the Merger Goes Through, AT&T Will Not Take Any Universal Service Fund Subsidies For It’s LTE Build Out.**

Anyone following the news knows how Republicans and Democrats alike want to cut federal spending. AT&T has therefore aggressively advertised that if the feds allow it to acquire T-Mobile, it will (almost) achieve President Obama’s goal of (not quite) universal wireless deployment — while relying only private capital! At the hearing before the Senate Judiciary Subcommittee on Antitrust (video here), AT&T CEO Randall Stephenson gave us this big headline:

So I’ll 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. (Minute 117)

 

Later (minute 143), in response to a question from Subcommittee Chairman Senator Kohl (D-WI), Mr. Stephenson agreed to accept “as a condition of the merger” not to take universal service funds (USF) “for this LTE build out.”

Wow! AT&T will build out its wireless network to 98% (well, 97%) of the country without taking another dime of federal subsidy! What a bargain! Who could say no?

Turns out, not so much. Buried on page 222 of AT&T’s Opposition to Petitions To Deny is the fine print. As explained by AT&T’s lawyers, despite Mr. Stephenson saying he would accept “a condition,” what he really meant was that he was making a “voluntary commitment” and that AT&T would not accept a condition.True, that is the exact opposite of what Mr. Stephenson actually said, but after all, that’s what fine print is for! It lets AT&T say one thing very loudly, then qualify much more quietly that they mean exactly the opposite. After all, why should the FCC need to impose a condition just because AT&T’s CEO told Congress in a public hearing on the record they would accept a condition?

And to be clear, I am not asking for a condition. I think the FCC ought to deny the merger. I’m just pointing out for all the folks who act as if AT&T proposed a condition that, in fact, AT&T did not accept a condition, just a “voluntary commitment” that AT&T thinks is just as good as a condition but has the added advantage of being totally non-binding.

In any event, AT&T’s fine print on page 222-23 goes on to explain that despite all the emphasis on building out with “private capital,” AT&T intends to continue to suck down all the USF funding to which it is “legally entitled” (over $1 billion in corporate ‘entitlements’ between 2007-09, in addition to whatever they pick up in “entitlements” from T-Mobile). AT&T also makes clear that if the FCC goes ahead with USF reform to include broadband, AT&T will have its hand out for as much more USF broadband cash  as it can legally carry away. So rather than saving the USF fund money to go to other, smaller, more needy carriers, net savings to the  Universal Service Fund as a result of AT&T acquiring T-Mobile will be zero — according to the AT&T fine print.

And, just in case anyone expected build out anytime soon, AT&T further qualifies in its Opposition (page 75) that it won’t complete its proposed rural LTE build out until 6 years after the FCC approves the acquisition, i.e. 2018. That’s awhile from now. It’s also important because AT&T says it plans to cover 80%  without acquiring T-Mo. So AT&T will keep doing what it already plans to do, with a promise of the big benefit of the merger 5 years down the road – assuming they get to it at all. Remember, according to AT&T, this is just a “voluntary commitment” rather than an actual condition.

So to put the AT&T “private capital” advertising and the fine print together, we have:

“As a result of the merger, we at AT&T will use private capital to meet the President’s pledge to get mobile broadband to 98% of the country. DISCLAIMER we will not go to the most expensive places where you really need us to go (that’s the difference between 97% and 98%), we will actually continue to sluck down as much government money to build and deploy rural broadband as we can grab, and we won’t actually build out any further than we already planned to do for another five years or so, so you folks in the rural areas shouldn’t be waiting up nights for all that broadband and jobs we promised. Oh yeah, and we reserve the right to  break this “voluntary commitment” anytime we want. Hope you’re not counting on this too much.”

AT&T’s Acquisition of T-Mobile Will Lead To Billions of Dollars In Broadband Investment* And Create Tens of Thousands of Jobs**

My hat is off to AT&T for the advertising blitz on this one for the clever way they use statements from friends and allies without ever making any promises themselves. What AT&T actually said, if one reads their carefully lawyered statement on pages 83-84 of the Joint Opposition, is that they will incur $8 billion in additional cost over the 7 years after closing “to expand LTE deployment and to integrate the AT&T and T-Mobile USA networks.” Nowhere does AT&T explain how much of that $8 billion in “additional investment” will be attributable to “integrat[ing] AT&T and T-Mobile USA networks”, for example, shutting down “redundant” T-Mobile retail stores and laying off existing T-Mobile  employees, rather than “expand[ing] LTE deployment.” Getting merger supporters to applaud money that may go to downsizing as “creating jobs” deserves some kind of Madison Avenue award.

While AT&T has been very careful and lawyer about what it actually says, it has been delighted to publicize the uber-optimistic claims made by folks like Economic Policy Institute as if AT&T totally stood behind these claims – even though AT&T very carefully does not ever say that they in any way, shape or form that it actually stands behind the claims of EPI or its other enthusiastic allies. As a lawyer, I particularly like the AT&T fine print on page 85, where it implies, but never states, that AT&T plans to make the $8 billion investment on which EPI bases its extremely optimistic job estimates.

As an aside, I should note that – as Scott Wallsten tweeted (and subsequently elaborated for me in private email) – the EPI analysis  assumes that AT&T will invest $8 billion over and above what T-Mobile and AT&T combined invest in build out. After all, T-Mobile already invests $2.8 billion a year in deployment. So to increase total investment in wireless broadband build out by $8 billion over 7 years (and create the squindoodle of jobs EPI predicts will flow from the deal), the combined AT&T/T-Mobile would have to keep spending the money it spends now, plus the $2.8 billion a year T-Mobile invests, plus over $1 billion a year in new investment for 7 years. If AT&T merely invests $8 billion (over 7 years) above what AT&T invests now, and eliminates the $2.8 billion that T-Mobile separately invests, then the amount of money invested in broadband over the next seven years will actually decrease by $11 billion (with, one assumes, an accompanying loss of jobs).

To illustrate with actual math. The current investment by AT&T andT-Mo combined over 7 years is:

T*7 +TMO*7

EPI assumes: AT&T and T-Mobile combined ((T+TMO)*7 years +$8 billion new money coming into the  field.

But if we take AT&T at its literal word that T/TMO will spend $8 billion more than what ATT spends now (and assume that all of that $8 billion will go to build out, not build out and other “integration” expenses) and that they will not spending T-Mo’s annual $2.8 billion, we get:

$8 billion-TMO*7= $8 billion – 19.6 billion = -$8.6 billion.

Or, in other words, the AT&T/T-Mobile merger actually eliminates more than $8 billion in broadband investment over the next seven years. And that assumes AT&T actually spends the entire $8 billion of “additional investment” in broadband deployment, which, as I noted above, they never actually promise to do.

So, to rewrite this merger claim to add the fine print:

“AT&T will invest an additional $8 billion over 7 years after the merger.” DISCLAIMER: Actually, a chunk of that money will go to “integrating” T-Mobile USA into the AT&T Borg and will cover “integration costs” — like firing people. Also, we hope you won’t notice that we are eliminating T-Mobile, which used to invest about $3 billion a year on its own, so total investment in broadband – on which so many of our friends and supporters base so many of their incredibly optimistic job predictions – will probably go down by $8 billion over 7 years, not up up by $8 billion over 7 years. This may result in the loss of jobs as predicted by merger opponents opponents, rather than an increase in jobs as predicted by merger supporters. While we embrace the analysis of our allies and wave it in front of you any chance we get, this does not count as an actual commitment to do anything even vaguely like what our supporters keep insisting we will do. We apologize for any confusion, but AT&T cannot be held responsible if you cannot tell the difference between what our supporters say and what we actually say.

Wireless Prices Just Keep Falling, So No Worries After The Merger.**

I love this one because it reminds me of an episode of Cyberchase (“Raising the Bar“) where Hacker uses graphs and charts to disguise all kinds of nasty things. AT&T likes to point out that price per minute for voice service has gone down for the cell industry during the last few years, despite all the industry consolidation. So no worries if AT&T acquires TMO. They even have a graph!

My colleague Ernesto Falcon has already explained the fine print on this one, so I will just add one little thing. According to the most recent FCC wireless competition report, prices stopped falling in 2009. In other words, once AT&T finished absorbing Centennial and Dobson, and Verizon finished consolidating AllTel, prices stopped dropping even using AT&T’s funny math. So even if we took AT&T at its word that consolidation did not drive up prices before, and agreed with all of AT&T’s assumptions, we have clearly hit the tipping point where further consolidation means future price increases.

More importantly, even back in last year’s report, the FCC found that even though overall voice prices had declined, AT&T and Verizon were able to charge a “premium” (or, as we consumer advocates say, ‘monopoly rents’) for service above industry average. However, when T-Mobile started to offer its all you can eat voice/text package, AT&T and Verizon were forced to drop their price.

So, to add the fine pint:

No one should worry about our acquisition driving up prices, because prices for voice service just keep dropping! Disclaimer: Leaving aside our cute games with graphs (as seen on Cyberchase!), prices have actually stopped falling, so now would be a good time to worry about how further consolidation will drive up prices. Also, the only reason we dropped prices last time was to compete with T-Mobile. Guess what? After we eat them, we won’t be competing with them anymore!

So to sum it all up, we can boil down the advertising for the merger and AT&T’s actual commitments in their merger filings (“the FCC fine print”) as follows:

We at AT&T promise that this time, things will be totally different from all our other mergers by getting us to deploy a better network for everyone! Disclaimer: But don’t try to hold us to that, and don’t hold your breath. Why should our merger commitments be different from our service commitments? Not our fault if you don’t read the fine print.

Stay tuned . . . .