REP. ROBERT W. GOODLATTE HOLDS A HEARING ON THE AT&T AND T-MOBILE MERGER

HOUSE COMMITTEE ON THE JUDICIARY, SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION AND THE INTERNET HOLDS A HEARING ON THE AT&T AND T-MOBILE MERGER

MAY 26, 2011

SPEAKERS: REP. ROBERT W. GOODLATTE, R-VA. CHAIRMAN REP. HOWARD COBLE, R-N.C. REP. STEVE CHABOT, R-OHIO REP. JASON CHAFFETZ, R-UTAH REP. SANDY ADAMS, R-FLA. REP. DARRELL ISSA, R-CALIF. REP. MIKE PENCE, R-IND. REP. JIM JORDAN, R-OHIO REP. TIM GRIFFIN, R-ARK. REP. TOM MARINO, R-PA. REP. TED POE, R-TEXAS REP. BEN QUAYLE, R-ARIZ. REP. TOM REED, R-N.Y. REP. F. JAMES SENSENBRENNER JR., R-WIS. REP. LAMAR SMITH, R-TEXAS EX OFFICIO

REP. MELVIN WATT, D-N.C. RANKING MEMBER REP. JOHN CONYERS JR., D-MICH. REP. HOWARD L. BERMAN, D-CALIF. REP. JUDY CHU, D-CALIF. REP. TED DEUTCH, D-FLA. REP. SHEILA JACKSON LEE, D-TEXAS REP. ZOE LOFGREN, D-CALIF. REP. JERROLD NADLER, D-N.Y. REP. LINDA T. SANCHEZ, D-CALIF. REP. MAXINE WATERS, D-CALIF. REP. DEBBIE WASSERMAN SCHULTZ, D-FLA.

WITNESSES: RANDALL STEPHENSON, CHAIRMAN, CEO AND PRESIDENT, AT&T INCORPORATED

RENE OBERMANN, CEO, DEUTSCHE TELEKOM AG

STEVEN BERRY, PRESIDENT AND CEO, RURAL CELLULAR ASSOCIATION

PARUL DESAI, COMMUNICATIONS POLICY COUNSEL, CONSUMERS UNION,

JOSHUA WRIGHT, GEORGE MASON SCHOOL OF LAW

ANDREW GAVIL, HOWARD UNIVERSITY SCHOOL OF LAW

[*] GOODLATTE: Good morning. And welcome to this hearing of the Subcommittee on Intellectual Property Competition and the Internet. This hearing poses the question, How will the proposed merger between AT&T and T-Mobile affect wireless telecommunications competition? Companies merge and acquire one another everyday at America. In a free market economy like ours, companies are generally free to organize themselves and their assets as they see fit.

While there is general freedom for companies to merge, even if the merger forms a large company, the anti-trust laws do place some limits on these transactions. The specific limit is set by Section 7 of the Clayton Act which prohibits mergers that substantially lessen competition or tend to create a monopoly. This strikes the right balance. Competition is the backbone of a successful free market. Competition spurs innovation and ensures that the market allocates resources efficiently. A free market cannot work without competition and a merger that decreases competition weakens the free market.

The Department of Justice is in the process of reviewing the proposed merger between AT&T and T-Mobile to determine if it is anti- competitive. In general terms, the department will block the merger if it believes that the merger of AT&T -- that after the merger, AT&T or Verizon would have enough market power to raise prices, decrease output or diminish innovation without being held to account by competition.

AT&T and T-Mobile argue that this merger will improve competition. They believe that the merger will let them increase their spectrum capacity and network range so that they can increase output and compete more vigorously for customers. Past mergers in the wireless industry have not led to price increases, output reductions or less innovation.

Over the past decade, the wireless market has been marked by innovation, expansion and lower prices despite a series of mergers that significantly consolidated the industry. But there are legitimate questions about whether this merger could move the wireless market past an anti-competitive tipping point. This merger results in more concentration than any previous merger in the wireless market. The merger combines the second and fourth largest wireless carriers to create the largest carrier which will control over 40 percent of the wireless market.

Unlike previous mergers, this merger is between two nationwide wireless networks and it will reduce the number of nationwide wireless networks from four to three. Can the wireless industry remain competitive with this level of concentration? AT&T, like Verizon, controls much of the wire line telephone networks that were originally built by the old Bell monopoly. Other wireless carriers have to pay AT&T and Verizon to carry their calls and data over this wire line network. This service is called "backhaul". Will AT&T and Verizon be able to manipulate their power in the backhaul market to raise prices on other wireless companies and stifle competition?

Smaller providers who only have regional networks have to enter roaming agreements so that their customers can have service when they venture beyond network range. Will this merger give AT&T market power to raise roaming prices?

Increasingly, wireless companies enter into agreements with mobile device manufacturers to be the exclusive service provider for a new device. Famously, for years after its introduction, the iPhone was only available with AT&T service. Will AT&T and Verizon be able to leverage their wireless market -- leverage their wireless market share to deny the best devices to their competitors or to stifle handset innovation?

It is ultimately the Department of Justice's job to answer these and other questions raised by this merger. The department should follow the facts and the law in an even-handed manner and block the merger only if they conclude that it is anti-competitive.

Congress has no formal role in the DOJ or FCC merger review process, but hearings like this provide a public venue to ask, answer and debate these questions which are of great importance to American consumers.

I look forward to the testimony of the witnesses, the debate among the members of the committee, and in the end, a wise decision by the Department of Justice that ensures a competitive future for wireless communications in America.

It's now my pleasure to recognize the ranking member of the subcommittee, the gentleman from North Carolina, Mr. Watt.

WATT: Thank you, Mr. Chairman.

The proposed merger between AT&T and T-Mobile raises important issues of competition policy in the wireless space. Over the last two decades, the wireless industry has grown exponentially from just over three million subscribers in the late '80s to almost 300 million today. In the current wireless market, four major carriers provide service throughout the country - Verizon, AT&T, Sprint and T-Mobile, in the order of market share.

Therefore, when the horizontal merger between the second and fourth largest wireless carriers was announced in late March, a predictable frenzy of concerns about the probable impact of the merger on competition and consumers erupted in the press and in general discussion.

Will the proposed merger result in an unregulated or heavily regulated duopoly of Verizon and A&T (sic) with a combined share of almost 76 percent of the market. What in fact is the relevant market definition? Will prices increase? What other potential impacts on consumers short and long-term? What will be the impact on innovation? Will Verizon and AT&T corner the market on handsets, applications and other devices? How will access to roaming and backhaul services be impacted? Will future spectrum auctions be less competitive or otherwise negatively impacted? How will the merger impact younger and poorer customers disproportionately minority, based on recent reports, who rely on their wireless service to access the internet. What about jobs? Are the synergies identified by the merger participants a euphemism for massive job loss?

These are all legitimate and complicated questions and they are precisely why the Federal Communications Commission and the Department of Justice are conducting independent fact-intensive investigations into the public interest and competitive implications of the deal. The Department of Justice conducts its review under the anti- trust laws while the FCC acts pursuant to the Communications Act to assess whether an industry merger is within the public interest, presumably, what will be the impact on consumers.

The Department of Justice's evaluation alone is projected to last up to one year. My belief in this context is that we should allow these agencies to do their jobs unfettered by political pressure from Congress. While I believe this hearing will educate members of Congress and the public, I also know that we will never have access to all the facts and data on which the agencies based their determination of whether to approve or disapprove the merger with or without conditions.

I appreciate the chairman scheduling the hearing -- hearing however because I believe it enables the public to learn more about what's at stake. An informed -- and an informed public is an incentivized public and an educated and active public is good for democracy. So it is in the spirit of acquiring as much information as we can on -- in this limited forum to develop a publicly available record, that I look forward to hearing from our panel today.

And with that, Mr. Chairman, I yield back the balance of my time.

GOODLATTE: I thank the gentleman.

And now it is my pleasure to recognize the chairman of the Judiciary Committee, the gentleman from Texas, Mr. Smith.

SMITH: Thank you, Mr. Chairman.

The past two decades have seen astonishing growth and innovation in wireless communications. In 1989, just over three million Americans had wireless telephones. Today, there are nearly 300 million wireless subscribers. A cell phone is no longer just for making voice calls, Americans now use wireless technology to download books and music, send email and text, surf the web and stream movies and TV shows.

This wireless revolution, together with the internet revolution, promises to transform the spread of ideas and information more than any development since the printing of the Gutenberg bible. We can thank competition for this world-changing innovation. Competition had spurred invention and improvements at every level of the wireless economy. It has lead to new devices, applications and networks that were the stuff of science fiction not long ago. Wireless competition has produced miracles in the recent past. Today's hearing is about wireless competition's future.

The Department of Justice is currently reviewing the proposed merger between AT&T and T-Mobile to determine if it will lessen competition. This proposed merger means tremendous change for the wireless industry and millions of consumers. That's why it's important to proceed carefully and make sure we get it right.

A merger of this size, which would concentrate over 40 percent of the wireless market in one company, raises some questions. AT&T and T-Mobile argue that the merger will actually increase competition. They say the merger will allow them to unleash the next generation of wireless service more efficiently than either could alone. And AT&T says that it is facing a spectrum crunch brought about by the advent of smartphones and tablet computers that transmit large amounts of data.

AT&T argues that its spectrum shortage will limit its ability to compete effectively unless the merger is approved. AT&T and T-Mobile argue that the merger will solve both AT&T's spectrum crunch and T- Mobile's lack of a 4G LTE network. Combined, AT&T and T-Mobile hope to improve service, innovate and expand their network into underserved rural areas. In their vision, wireless companies including upstarts like MetroPCS and Life Square (ph) will continue to compete, innovate and decrease prices.

Opponents of the merger paint a different picture. Many wireless competitors and consumer advocates believe that a more concentrated wireless industry will reduce competition, stifle innovation and raise prices.

In particular, merger opponents worry about access to new devices, roaming agreements and backhaul services. It is the Department of Justice's job to predict which of these very different pictures of the merger is more likely. The department should make this prediction based on a fair analysis of the facts, economics and the law.

A single congressional hearing cannot examine all of the detailed economic evidence that is needed to accurately predict the effects of this merger. But this open forum should serve to clarify and illuminate the issues presented by this merger. The American people deserve the full picture.

Thank you, Mr. Chairman, and I yield back.

GOODLATTE: I thank the gentleman.

The ranking member of the full committee, the gentleman from Michigan, Mr. Conyers, is recognized.

CONYERS: Thank you, Chairman Goodlatte.

I applaud the comments that have been made before me. And I particularly agree with Chairman Smith in suggesting that we may need more than this hearing to continue our examination of the merger.

(OFF-MIKE)

CONYERS: Now, as one who is widely known for having an open mind about issues, I -- I want to confess that I have never met a merger that I liked. They always cost jobs and they create less competition and they hurt consumers. That being said, that's what makes the hearing so important here, because we'll never know what the justice department and FCC did to come to their agreements. And at least we'll get a glimpse of what the corporate leaders claim their rationale is for this merger. A lot of people that need to be heard here, Communication Workers of America and Sprint, labor, the president of the UAW, Bob King.

Now, we can see that AT&T has a unionized workforce, that makes them good corporate people. And they're -- they're more responsible than some of their competitors and we give them all that kind of credit. But here's the concern here - everything that we're talking about that's going to happen that is so great from this merger is really already accomplishable. You don't need a merger to do what you claim you -- you the need the merger for to accomplish.

What are the two-page ads going on, on the Hill papers all over today? "We need the merger to reach 97 percent of Americans instead of the 80 percent that would be covered under the current plan." Industry analysts and competitors point to the fact that AT&T currently has spectrum holdings to already accomplish this laudable goal. They do not need T-Mobile to do it.

If the acquisition is allowed by the regulators, the deal will give AT&T and Verizon over 70 percent of the wireless market. And what about the little guys? Where does creation come from in this business? It doesn't come from the biggest people unless they buy up the small people, it comes from the small people. And so we're missing a big opportunity here if we don't look very carefully at what -- what's going to happen.

And what is the other result?

The next biggest people have got to do the same thing that they're proposing here today. This will be the last one. If this gets through, there's another one in the -- on the drawing boards already. Who doesn't know that?

And so I'll submit the rest of my statement so we can hear the witness.

GOODLATTE: I thank the gentleman.

Without objection, all other opening statements will be made a part of the record.

We have a very distinguished panel of witness today. Each of the witnesses' written statements will be made a part of the record in its entirety and I ask that each witness summarize his or her testimony in five minutes or less. To help you stay within that time, there is a timing light on your table. When the light switches from green to yellow, you'll have one minute to conclude your testimony. When the light turns red, it signals that the witness' five minutes have expired.

It is the custom of this committee to swear in our witnesses before their testimony. So at this time I'd ask them to stand and be sworn.

So you, and each of you, swear that the testimony you're about to give is the truth, the whole truth, and nothing but the truth. So help you God?

Thank you. And please be seated.

Our first witness is Randall Stephenson, Chairman, CEO and President of AT&T Incorporated. Our second witness is Rene Obermann, CEO of Deutsche Telekom AG, the German-based parent company of T- Mobile USA. Our third witness is Steven Berry, President and CEO of the Rural Cellular Association, a trade association made up of nearly 100 wireless carrier companies ranging from small rural carriers to larger carriers like Sprint. Our fourth witness is Parul Desai, Communications Policy Counsel for Consumers Union, publisher of Consumer Reports magazine. Our fifth witness is Professor Joshua Wright, of George Mason School of Law. Professor Wright focuses academic work on antitrust law and holds a JD and PhD in Economics from UCLA. Our sixth and final witness is Professor Andrew Gavil of Howard University School of Law, where he has taught antitrust law since 1989. Professor Gavil received his JD from Northwestern University School of Law.

We will be pleased to start with Mr. Stephenson. Welcome.

STEPHENSON: Thank you, Chairman Smith, and Chairman Goodlatte, and with Ranking Member Conyers and Ranking Member Watt, and other members of the subcommittee.

I'm Randall Stephenson, Chairman and CEO of AT&T. And I do want to thank you for the opportunity to talk with you about the consumer benefits of AT&T's acquisition of T-Mobile USA from Deutsche Telekom. Because first and foremost, this transaction is about consumers, it's about specifically keeping with consumer demand. It's about having the capacity to drive innovation and competitive prices. It's about giving consumers what they expect and that's fewer dropped calls, faster speeds and access to high-speed 4th generation LTE mobile internet service, and that's whether they live in a large city, in a small town or out in the country. It's about achieving these benefits purely with private capital, helping to deliver a private market solution to very important public policy objective as we take 4th generation LTE to more than 97 percent of all Americans. And I'd underscore the fact that this means good jobs -- good jobs for employees of the combined company, good jobs for the vendors who support our efforts, and good jobs in the community served by the network that will result from this investment.

Over the past four years, we have seen a revolution in wireless. Smartphones and mobile apps have exploded. Innovation has cycled at an amazing pace. Consumers and the economy have all benefited, and our network, more than any other network, has carried the load.

In fact, over the past four years, data volumes on our mobile network have shot up by 8,000 percent. To meet this demand, over the same four-year period, AT&T invested more in the United States than any other public company -- $75 billion in capital -- and we continue to invest at a very aggressive pace because the next wave is now already upon us -- and it's in the form of tablets and it's in the form of services like mobile high-definition video. In 2015, just four years from now, by the time we get to February of 2015, we estimate our network will have already carried as much mobile traffic as we carried for the entire year in 2010. That's how fast the mobile Internet is growing.

Just about the only thing that we know of that can slow down this cycle is the lack of capacity to meet the demand. As the chairman of FCC -- as FCC Chairman Genachowski has said -- and I'd like to quote him -- "if we do nothing in the face of the looming spectrum crunch, many consumers will face higher prices as the market is forced to respond to supply and demand and frustrating service," end quote.

None of us want that. And I do applaud the FCC and members of Congress for their leadership on this issue, but the fact is, even with everyone's best efforts, it will be several years before significant amounts of new spectrum are placed into service.

So to meet growing consumer demand, we have to find more ways to get more capacity from the existing spectrum. And that's exactly what this combination will do.

Our two companies have very complementary network assets and spectrum -- which means combining them will create much more network capacity than we have operating independently. More capacity means improved service. And it's a very basic concept. In any industry, the greater capacity is the fundamental driver of sustained vigorous competition, innovation, and pricing.

The U.S. wireless marketplace is among the most competitive in the world, and it will remain so. Over the past decade, U.S. wireless prices have steadily and dramatically come down. And this transaction allows that trend to continue.

With this transaction, we're also committed to providing LTE mobile Internet service to more than 97 percent of the U.S. population. That's nearly 55 million more Americans than our pre- merger plans and millions more than any other provider has committed to at this point.

We all understand the benefits this will bring to small towns and rural communities in areas like education, health care, and economic development. And we will deliver these benefits with the only unionized workforce of any major carrier, wireless carrier, in America.

The current T-Mobile customers will be able to retain their existing rate plans and they will gain access to LTE service, which is something T-Mobile had no clear path to offer on a stand-alone basis.

So, Mr. Chairman, that's a quick overview of some of the reasons this transaction has won strong support from unions, minorities, local representatives, as well as industry experts.

So, again, I thank you for the opportunity. And I look forward to your questions.

GOODLATTE: Thank you, Mr. Stephenson.

Mr. Obermann? Welcome.

OBERMANN: Thank you, Chairman Goodlatte, Chairman Smith, Ranking Member Watt, Ranking Member Conyers, and members of this subcommittee.

My name is Rene Obermann, and I'm the chief executive officer of Deutsche Telekom AG, based in Bonn, Germany. I appreciate the opportunity to testify today on behalf of Deutsche Telekom.

First of all, I fully agree with Mr. Stephenson's introductory comments and I firmly believe that this transaction is the best possible outcome -- not only for DT, for our group, for T-Mobile USA and AT&T, but for our customers and for wireless competition and for innovation in the United States.

Before I discuss the substantial benefits of this transaction for T-Mobile's customers, I would to first provide some background on our decision to proceed with the sale of T-Mobile. Since Deutsche Telekom's acquisition of VoiceStream almost exactly 10 years ago, our U.S. business has faced intense and evolving competition in the wireless sector.

In recent years, in particular, T-Mobile USA has faced increasingly fierce competition from a growing number of players, including not only large facility-based competitors, but also smaller no-contract value players, including not only large facility-based, but -- but value players and others such as virtual network operators -- mobile virtual network operators, regional wireless carriers, and so called over-the-top providers that include increasing number of mobile voice-over-Internet solutions such as Skype, which is now being acquired by Microsoft.

T-Mobile has been caught in the middle of this dynamic marketplace and has had an increasingly difficult time competing. We have lost market share over the past two years. In the most recent quarter alone, we lost 471,000 contract customers while other competitors are growing rapidly. Hence, while other competitors are moving quickly to build out and to develop their LTE networks, T- Mobile lacks a clear path to LTE deployment.

To meet the exponential growth in demand for bandwidth and network capacity, T-Mobile will need to move to LTE to remain competitive. But the company simply does not have access to the wireless spectrum needed to deploy LTE effectively.

T-Mobile has already dedicated its existing spectrum resources to its less spectrally efficient GSM and HSPA-plus networks. As it is, the company is likely to face a spectrum crunch in several key markets in the coming years on those technologies alone even without the move to LTE.

With this backdrop, T-Mobile and Deutsche Telekom had to make some difficult decisions. Remaining a competitive force in the U.S. wireless marketplace was going to require a very significant additional capital investment both in spectrum and in infrastructure. However, it has becoming increasingly apparent that the prospect of additional spectrum becoming available for acquisition is uncertain at best. Even if available, such an acquisition would force Deutsche Telekom to reallocate funds from our core European operations into T- Mobile USA -- which would be very difficult for us given our overall group debt situation and our high capital investment needs in Europe.

This transaction resolves these issues in a manner that delivers more value with substantially less execution risks both to Deutsche Telekom and to T-Mobile's customers than any other alternative which is theoretically available to us. It allows DT to advance its global business strategy while making the necessary resources to modernize and upgrade our core businesses in Europe.

And as a significant shareholder of AT&T after the transaction, this transaction will also mean that Deutsche Telekom maintains an interest in and can continue to contribute to the rapidly growing and highly competitive United States wireless business. At the same time, the transaction will mean significant benefits for our U.S. T-Mobile customers.

And let me highlight just a few of these benefits. First, T- Mobile customers will enjoy substantial improvements in their coverage through access to AT&T's low-band 850 MHz spectrum. In particular, this will mean significantly improved deep in-building and rural coverage.

Second, the transaction will result in near-term network quality improvements for T-Mobile customers. Merging the companies' complementary networks and pooling their spectrum will very quickly lead to significant operating efficiencies, which will mean better coverage, fewer dropped and blocked calls, and faster and more consistent data downloads particularly at peak times and in high- demand locations.

Third, the transaction will further give the combined company the resources and spectrum it needs to broadly deploy next generation 4G- LTE service to more than 97 percent of Americans. T-Mobile, on its own, simply did not have the spectrum to roll out its own competitive nationwide LTE network.

And fourth, the transaction will allow the combined company to increase capacity and to reduce costs significantly, which will drive prices down and enhance opportunities for innovation, making the U.S. an even more competitive and innovative marketplace.

As I have already described, the U.S. wireless marketplace is extremely dynamic and competitive today, and will become even more so with the capacity growth and cost savings which are made possible by this transaction.

To conclude, Deutsche Telekom's sale of T-Mobile USA to AT&T is a true win-win solution. It not only advances Deutsche Telekom's business strategy, but also directly addresses T-Mobile USA's strategic challenges and delivers significant benefits to T-Mobile customers and the wireless competition in general. Thank you for your time. I welcome the questions.

Thank you, Mr. Obermann.

Mr. Berry? Welcome. You might want to turn that microphone on. Very good. Thank you.

BERRY: Good morning, Chairman Goodlatte, Ranking Member Watt, Chairman Smith, and the Ranking Member Conyers. Thank you for the opportunity to testify today.

The AT&T takeover of T-Mobile is a game-changer. This anti- competitive shockwave will reverberate through the entire wireless industry.

If approved, this merger virtually guarantees a wireless duopoly that harms competitive carriers and consumers. It frustrates the goal of mobile broadband deployment across our nation and will require re- regulation of the wireless industry. RCA represents competitive carriers -- rural, regional, urban and suburban carrier, all across the nation.

Today, I testify on behalf of nearly 100 carrier members and 145 vendor-supplier members of RCA, many of which are small businesses who compete for customers with robust service offerings, own and build their wireless networks and remain involved in their local communities.

The David versus Goliath competition against the largest national carriers is nothing new, but if this proposed takeover is approved, it will be a bridge too far. The advantages of size, scale, vertical integration in the wireless value chain will overwhelm our nation's local competitive carriers.

Let me offer five specific reasons why this transaction should not happen. It eliminates meaningful competition. This takeover would consolidate the industry to the extreme. Two large carriers, AT&T and Verizon control almost 80 percent of the market.

Such consolidation would leave these consumers at the mercy of a duopoly. And history tells us the results. The customer, the consumers will face price increases, reduced innovation and fewer choices. It disrupts data roaming. Voice roaming, and, now, data roaming are fundamental building blocks of our nation's wireless networks.

Roaming is just another word for national mobility. Without it, some customers will not have service. Ask yourself -- which of your constituents would want to buy a phone that only works in your congressional district. That's why wireless is a national market.

AT&T operates a digital technology called GSM and is proposing to buy the only other national GSM provider -- T-Mobile. Therefore, if this bill is approved, small GSM providers face an AT&T roaming monopoly immediately. If you use the other technology, a CDMA technology, you have only two roaming choices -- Verizon Wireless or Sprint Nextel. If this bill is approved, how long before Verizon attempts to buy Sprint Nextel? This does not look or sound like a competitive marketplace for the future.

Three, it limits innovation technology and interoperability. Just as all consumers want service nationwide, they also want new innovative devices. Imagine the market power when two big companies control 80 percent of the wireless market.

Will any of the small wireless carriers who serve rural towns across our nation have a fair shot at getting these new, latest devices? Well, I think not. Apple will tell you that the iPhone is not exclusive, but yet only AT&T and Verizon offer the iPhone after four years.

Number four, it concentrates spectrum. This takeover will concentrate spectrum in the hands of AT&T and will do nothing in itself to bring 4G broadband services to rural America. T-Mobile owns few licenses in the rural market. AT&T already holds the prime of low-band spectrum needed to serve rural areas.

Today, without this bill AT&T could build out the low-band spectrum it already owns and commit to support ubiquitous data roaming and harmonization across the 700 MHz and that would help rural America. Bringing wireless broadband to rural America should not be held hostage in an attempt to win a regulatory favor for this anti- competitive deal.

And finally, eliminating competition means additional regulation. Today's light-touch regulatory regime is founded on the presence of vigorous competition, turning competition into a duopoly and Congress and the FCC will have to reevaluate this light-touch regulatory regime.

The FCC will seek to increase regulatory involvement to artificially maintain the benefits competition should bring to your constituents. Please recognize this proposed takeover for what it is -- a horizontal merger. It entirely eliminates a national competitor and it threatens the ability of all other carriers to provide competitive services.

This takeover cannot be conditioned into acceptance and must be stopped.

And I welcome any questions that you may have. Thank you.

GOODLATTE: Thank you, Mr. Berry.

Ms. Desai? Welcome.

DESAI: Thank you, Chairman Goodlatte, Ranking Member Watt, and members of Congress for this forum and for this opportunity to talk a little bit about how this transaction will affect the consumers. For 75 years, the Consumers Union has been working to ensure that consumers do have access to a fair marketplace to all consumers. However, we -- however, we do have great concerns about the negative effects that this will have on consumers and in the fair marketplace, especially the effect that it will have on meaningful choice, consumer pocket books (ph), quality service, and access to innovative products.

My written testimony goes into detail on all those factors. For the remainder of my five minutes, I'll focus on two main issues -- prices and choice.

Mobile devices and mobile broadband are becoming integral in people's lives. Mobile broadband is a especially critical entry point and, sometimes, the only entry point to the Internet for many communities such as rural communities, communities of color, and low- income communities.

The last thing consumers need right now is a takeover that will result in higher prices for consumers, many of who are already struggling in a very tight economy. Our magazine, the Consumer Reports, has compared the plans between AT&T and T-Mobile.

(Inaudible) comparable plan, our magazine has found that T-Mobile offers up to $15 to $50 a month plans that are cheaper than AT&T. For most Americans these days, $15 -- $15 to $50 a month can go a long way. Fifteen dollars can be a child's school lunch for a week. Fifty dollars could be the price of cost -- the price of filling up a gas of tank.

For most -- excuse me -- it is inevitable that T-Mobile customers who are already paying lower prices than they would on AT&T plans will see rate hikes. But we are also concerned about the ripple effect this will have on all consumers.

If two companies are allowed to control 80 percent of the market with little to no consumer protection, there is very little reason to believe that these two companies will discipline each other when it comes to prices. We already see that Verizon and AT&T don't discipline each other when it comes to prices. So there is no reason why they would do so moving forward.

So faced with higher prices, consumers will have difficult choices to make. Do they just forego access to mobile broadband or do they pay the higher prices and continue to make even -- even more sacrifices than they do now to make ends meet?

This leads me to my second point -- choice. Under this merger, if consumers are unhappy with the prices or the services that they are getting from the two providers, where can they go? Well, first, the consumer would have to finish his or her long two-year term wireless contract or be willing to pay the early termination fee to break that contract.

Long-term contracts and ETFs discourage consumers from one day to take in their phones to another service provider. But even if you get over that hurdle, you have to assume that the consumer can get the phone that they want from a different carrier.

We know today that more and more consumers are choosing their wireless provider based on the handsets that they are able to get from the provider. However, due to exclusive contracts and the inability of phones to operate from one network to another, many carriers, especially those represented by Steve (ph) here today, cannot get the latest and greatest devices that consumers actually want and (inaudible) would only be exacerbated by the merger.

With AT&T and Verizon able to control 80 percent of the market, more than ever, they will be able to force handset makers who have to rely on economies of scale to reach customer (inaudible) they'll be forced into exclusive deals. So if the consumer wants that latest, popular device, she will have no choice but to stick with AT&T or Verizon.

On top of this, AT&T and Verizon will have more power over which devices they allow in their network, what features they allow on these devices or applications are available in the app store. The consumers will find themselves with limited choices for applications and probably face less innovative products.

We have seen this story before. In fact, in 1982, when the FCC first made cell phone licenses available, it decided to award two licenses in each cellular market. One license was awarded to the local incumbent telephone company -- the Bell companies. The other license wasn't awarded until nine years later -- in 1991. By that time, the incumbent telephone companies served 80 percent of the population, had received half the spectrum, and a nine-year head start in the cellular market from most of the country.

The Bell companies had little incentives to develop a new technology that would compete with their wire line services. Mobile wireless developed much more quickly after the FCC made additional licenses available and companies without legacy wire line investments had entered the market.

To me, this merger is a lot like deja vu. Going back to the anti-competitive 1980s is not the future we should be aspiring to. The FCC and DOJ should not allow this merger to proceed. Instead, we urge the Congress and regulators to focus on ways to foster true and healthy competition in the market so that consumers can benefit from fair prices in the wireless marketplace.

Thank you. And I look forward to any questions that you have.

And, Mr. Chairman, if possible, I'd like to introduce this recent analysis of the antitrust -- the antitrust analysis by Allen Grunes and Maurice Stucke regarding how this merger is just anti-competitive.

GOODLATTE: Without objection, it will be made a part of the record. Thank you, Ms. Desai.

Professor Wright? We'll be pleased to hear your testimony.

WRIGHT: Chairman Goodlatte, Ranking Member Watt, members of the subcommittee, Chairman Smith, and Ranking Member Conyers, my name is Joshua Wright.

I hold a Ph.D. in economics, formerly an employee of the Federal Trade Commission and the Bureau of Competition. And I'm currently an antitrust law professor at George Mason University School of Law.

I appreciate the opportunity to testify before you today on this important issue. My testimony focuses upon how we should think about evaluating the likely competitive effect of the proposed transaction from a consumer welfare perspective.

I want to start by observing that there is a standard and well understood economic framework for analyzing horizontal mergers. That framework is articulated in the 2010 horizontal merger guidelines that were recently promulgated by the DOJ and FCC under the Obama administration.

Economists and lawyer of antitrust agencies apply these guidelines through highly fact-intensive investigations. The agencies then conduct various quantitative and qualitative analyses with these data.

My goal here is not to replicate of anticipate the analyses of those agencies will conduct, but to highlight the types of issues that agencies are likely to confront along the way in applying that analytical framework to this merger.

I'd like to begin with what is a broad and overarching principle of economic analysis of merger review that's been merged over the past 30 years of learning in the economic literature. Modern merger analysis focuses to the extent possible on competitive effects directly and does not merely look at market structures to make inferences about the future effects of a merger.

In other words, the economic theory and evidence is fairly clear that simply counting the number of firms on the market is an unreliable way to go about predicting the competitive effects of merger.

The current agency -- the current agency guidelines reflect this consensus view in industrial organization economics that merely rely on (inaudible) like market structure is likely to lead in errors in both directions with respect to antitrust review.

Instead, modern merger analysis focuses upon two issues -- the likelihood of merger will create an incentive to raise price relative to the world without the merger on the one hand and, on the other, whether the merger will create efficiencies that will result in benefits to consumers.

On the efficiency side, as Mr. Stephenson alluded to earlier (inaudible) the FCC is recognized in its wireless reporting elsewhere. Capacity constraints characterize the current wireless competitive landscape. Wireless carriers must make significant investments to expand and upgrade network capacity. Given the practical difficulties and delays associated with expanding spectrum holding through new through new auctions, acquisition of incremental spectrum through merger is desirable relative to delay and importantly through another feasible alternative, which would be rationing existing spectrum through higher prices.

These efficiencies from relaxing those capacity constraints are likely to result in benefits to consumers from increased usage on the anti-competitive side of the evaluation are two possibilities that the agencies will explore.

Unilateral price effects arise when a post-merger firm is able to without coordinating with its rivals have the power to increase the price. Coordinated price effects, as articulated in the same guidelines, by contrast, arise when coordinated pricing or collusion between firms is made more likely by a specific merger.

Unilateral price effects do not appear likely from the proposed transaction. Those effects are -- excuse me -- those effects are unlikely when a merger allows for expansion of capacity and reduction of the marginal cost of expanding capacity to increase output for consumers.

Further, a unilateral effect -- price effect is especially relevant when to merging firms sell products that are close substitutes. There's some evidence here that consumers do not perceive AT&T and T-Mobile USA wireless products as particularly close substitutes.

For example, the 2010 FCC report emphasizes the close price competition between AT&T and Verizon rather than AT&T and T-Mobile. Given the continued presence of Verizon and Sprint after the merger, the likelihood that AT&T would be able to unilaterally raise prices appears questionable.

Similarly, given the continued presence of Sprint, Metro PCS, Leap, and others that cater to the value oriented consumers that have been the focus of T-Mobile's business, it also appears questionable whether there would be unilateral effects with respect to those customers nor does it appear that a coordinated effect -- in other words, the price increase from coordination between rivals -- is likely.

The merger is going to facilitate coordinate pricing through eliminating a maverick. It does not appear that T-Mobile is a maverick and antitrust sense of the term. In contrast, in a period of growth, T-Mobile steadily lost consumers and has not increased output in market share.

It appears, in conclusion, that T-Mobile is neither a particularly close competitor or a maverick as would be required for either of the anti-competitive theories.

I'm hopeful that my testimony has highlighted some of the relevant issues. And I thank you for your time and allowing me to speak on this topic.

GOODLATTE: Thank you, Professor Wright.

Professor Gavil? Welcome.

GAVIL: Good morning, Chairman Goodlatte.

GOODLATTE: If you want to turn that microphone on and put it closely to you as well?

GAVIL: Good morning, Chairman Goodlatte, Ranking Member Watt, Chairman Smith, and Ranking Member Conyers. Thank you all for this opportunity to offer my views on the competitive issues posed by the proposed acquisition by AT&T of T-Mobile USA.

As this subcommittee is well aware, few industries are likely to be as important to our national economic, social, and political health in the 21st century as wireless telecommunications. And the proposed merger will significantly alter the shape of that industry.

Will the merger enhance the competitiveness of this field, producing lower prices, higher quality and robust innovation, or will it increase the incentives of the merging firms and other firms in the industry to exploit consumers, impair rivals, and stuns the growth and advancement of the industry? These are challenging and, in fact, intensive questions, as my colleague, Professor Wright, has pointed out.

Without access to the full range of information necessary to a fully informed analysis, I cannot offer you a confident and professional opinion today as to whether the merger will likely or not prove to be a violation of section 7.

My goal is far more modest. In my brief time, I hope that I can help to identify some of the critical questions this subcommittee's members may want to pose in reaching your own conclusions.

I will confess, however, that I am deeply concerned that the proposed merger presents very substantial risk of anti-competitive effects across multiple dimensions of competition, not merely cell phone service to consumers. While AT&T and T-Mobile have begun to make their case that consumers will realize benefits from the merger, the assertions are as of yet not fully substantiated.

I am also very skeptical that a negotiated settlement between the government agencies and AT&T and T-Mobile that permits the merger to go forward with conditions could be effective and consistent with the telecommunications act's commitment to competition.

Hence, the question I am asking myself and the question I urge you to ask as well is why would we want to take this risk? Once this merger is complete, there will be no method, no method for either the agencies or Congress to resurrect competition once it is gone.

My remark is focused on three points -- competitive effects, efficiencies, and that last point about the quality that we could expect out of a regulatory settlement. First, competitive effects -- I would completely agree with the framework that Professor Wright has set out about how we go about analyzing mergers in a modern framework.

But I think we disagree in the application here. And I know I am not as optimistic as he is about the outcome and not as certain as he is in the conclusions he has reached in terms of the record that we have before us today.

Yes, it is true that we don't today look solely at concentration, but we do look at a concentration. The proposed merger would reduce the number from four to three, which under the guidelines promulgated by the government creates a strong presumption that it will be anti- competitive.

And if the merger marginalizes Sprint as a major national player, the effective result could be to reduce competition from four to two. What impact will that have on the incentives of these firms to compete? Will they compete aggressively post-merger?

AT&T has urged that they face aggressive competition from fringe competitors in local markets and that we should analyze the merger based on those local markets. But they are the principal conduit through which all of the extraordinary technological advances in this industry flow.

Smaller fringe rivals simply do not perform that gateway function and would be able to compete on the same footing. So concentration levels remain high today and they will be even higher.

This idea that we should analyze it on local basis, city by city, can easily be seen to be a challenge if we just imagine some other examples.

We buy major appliances and automobiles locally as well. But would a merger between Whirlpool and General Electric or a merger between General Motors and Chrysler be something that we would look at at a local level and think about fixing it through spinning off dealers? I think not.

Another concern I have is not just how much of a competitor T- Mobile is, but what kind of a competitor it is. Has it been especially disruptive in this industry? Has it been especially price- sensitive? If it has, then its loss could be a loss out of dimension to its apparent size.

I'm concerned about the impacts the merger may have on innovation. As I said, many of the innovations we now enjoy are channeled through these two mega portals -- AT&T and Verizon. That will be more so in the future. And they will be gatekeepers for innovation in the industry.

And, finally, I'm concerned about exclusionary conduct. What will their incentives be with respect to their rivals because of the dependency those rivals already face in terms of interconnection and roaming? In conclusion, I would just again come back to my concern about a regulatory decree. I would urge the agencies who are reviewing this deal to reach an upward-down yes or no decision.

I'm very concerned that a judicially managed regulatory approach would be contrary to the spirit of the telecommunications act, indeed, contrary to the reliance on competition that it was designed to implement. We should not go back to the days of regulated monopoly and Ma Bell.

Thank you very much. And I stand ready for any questions.

GOODLATTE: Thank you, Professor Gavil.

I will begin the questioning. And Professor Wright, I'd like to follow-up with a comment made by Professor Gavil. You discussed the horizontal nature of this merger but aren't there pretty significant vertical implications to this as well? And my question to you is should the Justice Department consider the merger's effect on competition in markets other than consumer wireless services such as the market for business to business agreements involving backhaul, roaming or handset development.

WRIGHT: Thank you. And I believe the answer is, yes they should and -- and -- and will consider those issues again to the same sort of fact-analysis that's articulated in the guideline. I did not focus on either backhaul or roaming in my written testimony but I'm happy to -- to make some remarks her ands elaborate if -- if you so desire.

With respect to backhaul, this is surely in essence a vertical issue. The merger as a few of the witnesses have identified would increase the -- the post-merger share to approximately 40 percent. This is lower from an anti-trust perspective than the level of a share that would typically give rise to vertical concerns.

Now the agency guidelines do allow the agency to consider and look carefully at -- at vertical issues. But there is both a body of case law, economic theory and empirical evidence on when those sorts of vertical concerns arise and when they -- they -- they don't.

GOODLATTE: (inaudible) interrupt since I've got a limited amount of time and some other questions I want to ask but you may want to -- we'll submit some additional written questions you may want to flesh that out more in -- in a written response because I do want to have the benefit of that case law and your thoughts on that.

Let me turn to Mr. Stephenson and follow-up on that very issue. AT&T sells backhaul to most of its competitors but can backhaul its own calls free of charge. Backhaul is a crucial input for your competitor's wireless services. Couldn't AT&T price backhaul at rates that force competitors to raise their prices?

STEPHENSON: We do offer backhaul in the marketplace and we offer to a number of carriers represented in Mr. Berry's organization, in fact, all carriers across the United States. We are also a large purchaser of backhaul. In fact, we cover somewhere around 40 percent of the U.S, with our own backhaul (ph). So 50 percent, 60 percent of the U.S. we're purchasing backhaul ourselves from other competitors.

And we are having little difficulty finding competitive alternatives for backhaul. The cable companies, you can read their quarterly reports are having a lot of success in offering backhaul to wireless carriers. There are alternative providers of backhaul, CLECs we like to call them in the industry who are offering backhaul services. There are microwave solutions. In a lot of areas, we are investing our own capital and building our own backhaul when it's outside of our wire line franchise territories.

So there is extensive opportunity for buying backhaul. It's a very competitive environment. And I would also offer the FCC does currently have a proceeding open on this very issue. And they're dealing with this now within the FCC. And so I think there will be an open and a full hearing of that issue as well.

GOODLATTE: Thank you.

Mr. Berry, would you want to comment on that as well?

BERRY: Yes, Mr. Chairman. I would just suggest that around 30 percent of the cost of running a cellular operating cost is getting that signal back to the -- to the main trunk, the backhaul. AT&T and Verizon own over 90 percent of the backhaul capacity in the United States and last year made over $8 billion on that service, 93 percent of the profit came from people other than AT&T and Verizon on backhaul.

So I think the vertical integration and the potential impact that it has especially on my smaller members is huge. And you're right, we do have backhaul with AT&T and AT&T does in some instances use our members that also have backhaul. But overall, it's a huge problem. I knew it will be a place for AT&T will be able to use their market power. Thank you.

GOODLATTE: Mr. Obermann, I'm going to allow you to respond to that but I want to ask you another question and we'll just put it all out there and you can respond. You testified that T-Mobile has had an increasingly difficult time competing arguing that the merger was the best option available for T-Mobile.

But in January, you told investors quote, "We have the best 4G network in the U.S. We have a sufficient spectrum position medium- term. We have a variety of attractive smartphones on your shelves including the largest lineup of Android smartphones." You also described T-Mobile's spectrum position as quote, "Better than most of our competitors." Is T-Mobile today a viable competitor in the U.S. market or is it not?

OBERMANN: Well, both -- both is true. I said that on the long- term or longer term, we are lacking the spectrum...

GOODLATTE: You might want to pull the microphone a little closer to you.

OBERMANN: OK. So on the longer term, we are lacking the spectrum to upgrade our technology to LTE, that's the technology for four generation network. And LTE is the superior technology over time. And -- but as of today, we're trying to make the best out of our existing HSPA-plus technology out of our network. And so we're trying to compete by aggressively marketing that facility.

But currently the fact are that in the Q1 numbers demonstrate that, that we're losing customers, so we lost 470,000 customers roughly but Sprint for instance gained 1.1 million metro and (inaudible), they all gained customers and we lost customers. So the current position we're in is not -- not easy, it's actually difficult. Yet, we're trying our best, of course, to -- to market what we have with more success.

GOODLATTE: Thank you.

The gentleman from North Carolina, Mr. Watt is recognized.

WATT: Thank you, Mr. Chairman.

Mr. Obermann, I guess that raises the question in my mind I guess T-Mobile really wants out of the United States market one way or another, I take it. So what's the alternative if this merger is not approved?

OBERMANN: I'm not sure I understood the question correctly. What's your question, why we would (inaudible) AT&T?

WATT: No. I -- I take it that given the -- the economic situation of T-Mobile, I mean, you -- it sound to me like from your testimony, your preferred market is the Europe market and you want out of the U.S. market. So you're going to -- you're going to divest T-Mobile in the United States to somebody, AT&T or somebody else because you want out of the market. Is that -- am I misreading what you said or just misunderstanding what you said?

OBERMANN: I -- I think it's fair to say that we are fighting both in Europe and in the U.S. with -- with big capital investment needs because also in Europe we need to upgrade our networks, wire line and wireless networks which costs a huge amount of money and also in the U.S. We would have to continuously build out the network and acquire new spectrum.

So the -- really the fundamental strategic problem we are facing here is the longer term perspective, the lack of enough spectrum to build our LTE network. The reason why we've chosen this combination with AT&T after having analyzed the other theoretical options available is that it's the most...

WATT: I think you answered that question. I asked a different question. But I mean my purpose is not to -- not to make you bare your financial situation here in -- in -- in this room. I don't think that's appropriate. So I don't have -- I won't pursue that line of question.

The real question I have is -- is always kind of -- and I always hate this, to raise it because it sounds self-serving. In my congressional district, we have strong competition in wireless, all kinds of options because I represent the -- particularly urban areas. But the older I've gotten, the more time I've spent in the mountains of North Carolina.

And when I go up there, I mean, it's just -- there's no service. So -- I mean, I understand that Mr. Stephenson that AT&T already has a minimum of 21 megahertz and in some areas of North Carolina Mountains, 40 megahertz of unused spectrum in the North Carolina Mountains.

Why would you not build that out now in the absence of this merger and what is the likelihood that you'll do that even if the merger is approved? I guess that you all keep telling me that you got 90 percent -- 97 percent coverage and all of this. But folks in North Carolina Mountains can't even get mobile service in -- in a lot of the parts of the North Carolina Mountains. There's just no -- no mobile service. There's no competition.

OBERMANN: Yes, sir, I think I understand your question. I -- I will tell you on of the biggest dilemmas, issues that I face as a CEO, I've been dealing with this for quite some time is what to do about rural America. And rural America is a difficult equation for us particularly getting broadband through rural America. And we...

WATT: I'm just -- my basic cell phone service, I ain't talking -- I ain't even talking about broadband. I mean, I - I guess it would follow, broadband would follow but I'm talking about basic cell phone service in -- in parts of the -- of the country that seem to me to need it.

OBERMANN: Yeah. So rural -- cellular service is going to follow the same equation as fixed line service, it's just more difficult and costly to get through rural America. It's going to take more time. The beauty of -- the elegance of what we're proposing here is it's going to give us an opportunity to use wireless technology to get high-speed and basic wireless services to Rural America. That's the commitment with this deal.

We do have scale now; we would have spectrum position that would allow us to cover 55 million more people in rural and small town America with these capabilities. And that's the commitment we're making with this merger. It provides -- it does provide the right incentives for us to begin to build out rural and small town America with these wireless services, particularly broadband.

(UNKNOWN): Can I comment very quickly on that?

WATT: Go ahead.

(UNKNOWN): I just wanted to point out that Mr. Obermann earlier stated that -- that the lower band frequency that T-Mobile would get after acquiring AT&T would provide rural coverage so it's not clear that AT&T is actually getting something from T-Mobile. Mr. Obermann just said earlier that they would be acquiring lower band coverage to help in rural areas.

WATT: OK, anybody else got any -- Mr. Berry, maybe you can help me. You are from the rural America here. You...

BERRY: Yes, sir. We have -- we have one carrier in your congressional district, Alltel, and we have five of my member carriers in North Carolina. And it is very difficult...

WATT: In the mountains of North Carolina you've got five carriers?

BERRY: Yes, sir. We -- not in your district. In your district, we have...

WATT: Oh, no, I'm not -- this is not about my district really. It's about North Carolina in general, in rural areas of North Carolina.

BERRY: Correct. And -- and many of our members focus, like you say, on building out that rural area. It is very difficult in rural America, especially in the -- in the Smoky Mountains down there and the difficult terrain of North Carolina.

But we're -- my members are committed to building out in areas in the communities which they serve and live and occupy. And that's been very difficult. And we'll certainly talk to you more about how we can improve the coverage.

But, you're absolutely right, there are unused spectrum allotments in North Carolina, particularly that AT&T owns that have not been built out.

(UNKNOWN): Could I respond to the Ranking Member?

WATT: Yes.

(UNKNOWN): The unused spectrum, if I could clarify this, we have acquired a large amount of spectrum in several geographies around the United States. It's the 700 megahertz spectrum, the government auctioned it off.

We acquired that for one very specific purpose. That is where we're building these LTE broadband networks. It requires a big block of spectrum to build these broadband networks, 20 contiguous megahertz, just to build these networks.

And so we've acquired that spectrum and that is where we're deploying it now. In fact, we announced that we'll be launching five markets mid-year this year in that spectrum. So it will take time to build these networks out undoubtedly, but that is why we're holding that spectrum.

WATT: I guess somebody -- who was it that said, "How long?" Not long. I've been hearing that for a number of years now and I keep asking. But I won't -- I won't go there.

Mr. Chairman, I ask unanimous consent to submit for the record the testimony of Larry Corn, president of Communication Workers of America, and the written statement of Daniel R. Hesse, chief executive officer of Sprint Nextel Corporation, so that we'll have a complete record here.

GOODLATTE: Without objection, they will be made a part of the record.

WATT: I yield back, Mr. Chairman.

GOODLATTE: Thank you, gentleman.

The chair recognizes the vice chairman of the committee, the gentleman from Arizona, Mr. Quayle, for five minutes.

QUAYLE: Thank you, Mr. Chairman.

Mr. Stephenson, there's a lot of companies here that are U.S.- based, but they have a lot of operations overseas, in the Europe and Asia. And a lot of times they are required to get a phone that is on a GSM network.

Now, if the merger goes through between AT&T and T-Mobile, will there be a competitive alternative for these types of companies and individuals who require a plan that's on the GSM network?

STEPHENSON: So, today, if you are in Europe, to take an example, and you have a 3G device and you want to roam in the United States, there are very few phones in Europe that roam on the other GSM provider, which is T-Mobile.

In fact, I -- I might -- I might surmise that my friend Rene here is roaming on my network today because on 3G -- on the 3G network -- for that very reason. This transaction does not change that one iota.

And the importance to understand in the roaming world is the pricing discipline comes by virtue of we trade traffic. So if Rene needs for his customers to roam in the United States, I need my customers to roam in Europe. We exchange traffic, and then we set rates based on, you know, exchange of traffic. That's the pricing discipline.

I will tell you, I am aware of no situation around the globe where we have roaming arrangements where AT&T is paying less than the carrier who is bringing traffic to the United States. So the pricing discipline comes by virtue of those exchanges of traffic.

QUAYLE: OK. Thank you.

And, Mr. Berry, in your testimony you talked about how the consolidation within the wireless market has led to higher prices. Anecdotally, I'd just have to dispute that because I don't -- I just don't know where you're getting -- basing that in factual information because looking at my own wireless bill and the number over the last few years, the prices have come down and the services have gone up.

So where are you basing that -- that assertion on?

BERRY: I said that the prices would go up if all the... QUAYLE: Well, in your statement, you actually pointed to the fact that -- in your written statement -- that the consolidation that has occurred over the last five years has actually increased prices. And I just want to know where you base that on.

BERRY: Well, two factors -- one, for example, you were talking about international. The United States prices are actually a little higher than they are in the international arena. We've had a lot of price -- a lot of cost decreases because of technology.

Correlation is not always cause and effect. So I -- I think what you're seeing is higher bills because of a greater data usage and greater utilization from U.S. consumers. So your basic bill may go up, (inaudible) the consolidation has actually caused (inaudible).

(CROSSTALK)

QUAYLE: But that doesn't mean (inaudible). I'm sorry to interrupt, but that doesn't mean the consolidation has actually led to higher prices based on what you're actually receiving.

You're actually receiving more for less. And so that's -- that's all I was trying to figure out what -- what that factual statement was based upon.

Now, Professor Gavil, you stated in your testimony that if this merger does get through, Congress may not have the ability to bring back competition within the wireless sphere. But wouldn't the marketplace be able to take care of that? Wouldn't the marketplace to be able to bring back that competition if you have a situation where a company is gouging pricing?

And one of the things that we've been seeing right now is T- Mobile as the low cost provider. Now, doesn't that, first of all, give Sprint the ability to actually take up market share, take over customers who are looking for that low cost?

And, also, doesn't that also give, you know, cable companies who've talked about getting in the wireless sphere, various Internet companies have also -- if they see that there is the ability to go in and they have the capital to actually provide a service to those who feel that they're going to be under-provided in allowing the marketplace to bring back competition?

GAVIL: I think it's an important question, Congressman. And the answer has to do with barriers to entry that already exists in the -- in the industry. This is not an easy industry to get in to. So even if the prices were higher -- and, in fact, if you think about it, the incentive to raise price is affected by those companies' estimation of whether it's likely to see a new entry, a new competition.

It is not easy to acquire spectrum. It is not easy as we've been hearing to build out. It is not easy to produce 4G LTE systems. So if you're looking at all of those factors, in theory, yes, you would hope that if prices go up, there would be interest from others in entering the market and bringing new competition. But the merger itself may make entry more difficult. As we've been talking about these issues about interconnection and roaming, that would be a way a smaller carrier would want to enter the market and, yet, they would be subject to having to engage in agreements with Verizon and AT&T even to get into the market. And they would probably be in a price disadvantage because of that.

So, in theory, yes, but one of the things that's troubling about this market is the issue of entry barriers. And the merger will probably make those entry barriers even more difficult.

QUAYLE: But if a company that is currently not in the marketplace, but does have the sufficient amount of capital to be able to enter and provide direct competition because they see that there is an area of this market that isn't being serviced and they can actually make a profit even though the initial capital outlay will be substantial because of what you talked about, the barriers to entry, wouldn't you see that as a way for the market to just govern itself?

GAVIL: Yes. And, in fact, under the horizontal merger guidelines that the government uses, you look at the likelihood of -- of entry and you ask whether it would be timely, whether it would be likely, and whether it would be sufficient to counteract any incentive to raise price.

So that would most certainly be a part of the analysis.

QUAYLE: OK. Thank you very much. I yield back.

GOODLATTE: I thank the gentleman.

The gentleman from Michigan, Mr. Conyers, is recognized.

CONYERS: Thank you, Chairman.

You know, during the Clinton administration, outside of Microsoft, Department of Justice, antitrust was pretty dormant. During the Bush administration, the door was shut and we don't know if they were asleep or awake. It didn't make much difference.

And under Obama, I can count on one hand the number of mergers that have been blocked. Very few -- oh, yes, they put on conditions, which that's the last anybody ever hears about -- the conditions. Now, normally, at antitrust hearings, we get the promises that there won't be loses of jobs, nobody's -- we won't raise the rates.

The thing I like about these witnesses is they don't even promise that. And so I -- I thank you for, you know, your evasiveness on this issue. It makes it -- then I don't have to come back next year and say they promised that they wouldn't cut any jobs.

So I'm concerned. I see absolutely no redeeming reason for this merger to go through. Not even -- one, T-Mobile is probably broke. I'm glad (inaudible) doesn't want to reveal their finances. They're -- they're -- they're pretty desperate. And we -- we never ever do anything. The reason you merge, the reason that the mountains of North Virginia -- or North Carolina don't have any services is it's not profitable. What's so hard to figure out about that? You don't make any money. You make $29 billion a year, but you don't make any money up in the country or in the rural areas or in the small towns or in the mountains.

That's why you don't give them any service. And so what makes me think that T-Mobile joining you is going to make that any difference?

(UNKNOWN): May I respond to that?

CONYERS: Sure.

(UNKNOWN): OK. I would not argue with you that the profit motive does not drive us to invest in a lot of rural America. It's been that way in this industry for quite some time. The Universal Service Fund was in fact developed for exactly that reason.

What I believe this transaction affords is there does become a profit incentive for us to build out 97 percent of the U.S. with this mobile capability and mobile broadband. The significance of that is we're no longer looking for Universal Service funding and government funding to cover all of rural America. There's 3 percent remaining. We get to 97 percent with this transaction.

CONYERS: OK.

(UNKNOWN): There's 3 percent remaining for Universal Service Fund. That's a manageable approach to this rural coverage.

CONYERS: All right. Let me ask the professor from Howard -- what -- what are your reservations about this deal?

GAVIL: I think beyond the -- the reduction and the direct competition between the two firms, which I think clearly could result in higher prices for consumers, I'm very, very concerned about what it means for the basic structure of the industry as a whole.

As Chairman Goodlatte was asking Professor Wright earlier, this is not what we would traditionally call just a horizontal merger. The question is not just about the reduction of competition between two rivals. It's about them winding up in a situation where they are portals for lots of other firms with which they have vertical relationships.

Think about all of the technology that has advanced in the last five years in handsets and operating systems, and applications. All of the -- the things that we can do with our smartphones and our -- and our new tablet PCs and iPads, all of those things have come from people who now must interact and negotiate with a market that will be dominated by AT&T and Verizon.

And we can count on those two companies to do what's best in their interest, but I don't know that we want to entrust them with all of the decisions about what the next technology ought to be. A competitive market can -- can be more creative, can take some risks. And those kinds of -- of creativity and risk can bring us a more -- a more interesting and broader variety of product, allowing those products to be tested through competition, not through the judgment of two large portals.

DESAI: (OFF-MIKE)

CONYERS: Pull it up.

DESAI: Oh, sorry. To go to your comment about incentives for building out, Verizon has said that it will build out to about 95 percent of the country with the spectrum holding that it has now.

It's hard to believe that AT&T, which has similar holdings as Verizon, would just give up 15 percent of the market and not build out to 95 percent of the country. So I think we all expected that even before the merger, AT&T was going to compete with Verizon to build out. I don't think AT&T would simply give up 15 percent of the market to Verizon.

(UNKNOWN): Would you mind if I corrected one thing? We do not have the same spectrum holdings of Verizon. Verizon has a nationwide 24 megahertz (inaudible) of 700 megahertz spectrum.

We do not have that, make no mistake about it. We are not in equal footing in terms of spectrum. We do need the spectrum that T- Mobile holds to do a complete 97 percent build out of the U.S.

DESAI: I would just say I'm going by the recent Congressional Research Service note that came out a couple of weeks ago that they did that -- the two companies have similar holdings. They may not have the same holdings, but they do have similar holdings.

GOODLATTE: The time of the gentleman has expired.

The chair now recognizes the gentleman from North Carolina, Mr. Coble, for five minutes.

COBLE: Thank you, Mr. Chairman.

It's good to have you all with us this morning, gentleladies and gentlemen.

Mr. Stephenson, let me revisit a question that's being kicked around several times this morning. How did carriers actually determine when to build out, to expand or upgrade services in the small towns or rural areas of which I have many in my district?

STEPHENSON: Ranking Member Conyers is accurate. It is -- it's a -- we're a market-driven company. And we build out when we can deploy capital and earn a return on that capital. And, generally, it's only when technologies mature and the cost curves come down that we can make cost justify deploying technology into rural America. And that's -- that's kind of the equation. What is unique about this opportunity is there -- around the globe, we are scaling LTE, fourth-generation mobile broadband. These cost curves are already coming down very, very quickly. And so if you put two things together, first of all, expect (inaudible) that will allows us to build into rural America.

And second of all, a larger customer base against which you leverage that investment, we gain another 30 million subscribers with T-mobile. It changes the economics. And that's why this basically affords a private market solution to cover rural America. That's one of the most exciting things about this.

I have been looking for five years for a broadband solution to get to rural America cost effectively. I have not been able to find one. This is the first instance where we have a good, solid, economic justification for getting to rural America.

COBLE: Thank you, sir.

Mr. Obermann, I'm -- I'm told that T-mobile invested in infrastructure build-outs in Europe, but elected not to do so with the United States. If this is accurate, why in Europe and not in the U.S.?

OBERMANN: With due respect, sir, but that is not the fact. That is not the case. We invested continuously between $2 billion and $3 billion roughly per year over the last years and even in some years beyond $3 billion. So we keep investing into this market. But the fact of the matter is we haven't yet been able to acquire spectrum -- radio spectrum, which is gives us the opportunity to build the next- generation networks.

And this combination gives us and our customers the chance to get the benefits of the next-generation technology and to increase our capacity. Neither one can be (inaudible), neither AT&T nor us would have been able to build LTE to 97 percent of American customers.

COBLE: Thank you, Sir.

Let me hear from Mr. Stephenson and Mr. Berry on this question. I'm told that AT&T intends to offer enrollment (ph) agreements to all rural providers. Are there any limitations to this offer, so, A, and do these agreements also apply to data services?

Why don't we start with you, Mr. Stephenson, and then we'll hear from Mr. Berry?

STEPHENSON: I would -- I would tell you we are open for business for folks to roam in our networks, both 3G data as well as voice. I envision in LT environment, we will do roaming deals. And I'd be glad to do roaming deals.

The FCC about a month ago issued an order requiring companies to negotiate roaming deals at reasonable commercials terms. Before that order came out, we had a number of roaming agreements. Since that order came out, we have signed seven new roaming agreements on our 3G networks.

So to answer you question directly, yes, we are open to business. It's actually a good business proposition for us.

COBLE: Thank you, sir.

Mr. Berry?

BERRY: Yes, Chairman Coble, we're very glad to see the FCC order on data roaming. As a matter of fact, until the FCC began its (inaudible) process of directing a data roaming mandate, we were unable to obtain those types of agreements especially in rural America.

For the LTE, the solution that Mr. Stephenson has -- has talked about, there's another problem. And that is that -- that AT&T has created its own private band plan within the lower 700 megahertz. Most of the line members own band 12. Band 17 is a subset of that.

If AT&T were to -- to join with us and create interoperable standards for that band, we would join with them immediately and build out LTE throughout the -- the rural area in the United States.

We can't get access to handsets and devices. And we can't -- as -- as you said, you have to make money in your build-out. We would like and we welcome the opportunity to -- to -- to join in roaming agreements. But Verizon has already appealed that agreement of the FCC. And so it's on appeal, and we have yet to see whether not that is actually going to make a difference.

And we encourage every one of our members to -- to continue to monitor that and -- and -- and try to enter into agreements with AT&T.

If you're a GSM provider, there are no other options. It's either roam with AT&T if this deal goes through or no one else. And, right now, T-mobile is the value partner for those roaming agreements. Once this bill goes through, there'll only be one choice.

COBLE: Mr. Gavil, do you want to be heard?

GAVIL: Sir, first of all, I'd like to -- I just confirmed the number with my colleague. It was beyond -- well beyond $30 billion which we have invested over the last 10 years into this market.

Second, to the point of roaming, I cannot see a reason -- but maybe Mr. Stephenson should confirm that -- I cannot see a reason why the existing roaming contract with regional carriers -- and there are quite many -- would not be continued after the merger.

COBLE: Thank you, sir.

Mr. Chairman, I see the red light has illuminated. I yield back.

GOODLATTE: Thank you, gentleman.

The gentleman from Florida, Mr. Deutch, is recognized for five minutes.

DEUTCH: Thank you, Mr. Chairman. Mr. Chairman, I'd like to bring up something that was raised in the testimony of -- submitted for the record by the Communication Workers of America.

There is -- there has been an awful lot of complex analyses of -- of these issues. And I appreciated CWA's succinct statement of their position. And their president, Larry Cohen, said that we've -- they have studied the transaction carefully, that they reached the following conclusion -- that the acquisition of T-Mobile by AT&T will be good for broadband deployment, good for consumers, good for jobs, good for workers rights, and good for rural citizens.

Well, I'd like to get into some of those issues since there seems to be some difference of opinion. But he was quite clear. But, importantly, I would like to focus on the effective mergers on U.S. workers.

Workers have borne the brunt of this recession. And it's especially relevant in my state of Florida where unemployment continues to exceed 10 percent. So when I hear about a proposal of this magnitude, my first inclination is to look at what it will do for jobs and for workers, as Ranking Member Conyers brought up earlier.

I understand from Mr. Cohen's testimony, AT&T is the nation's only union -- wireless company with 43,000 union workers.

I trust, Mr. Stephenson, you would agree to that. It's a good thing for the company and for the employees at the company.

But returning to the question at hand, I'd like to hear from the panel about how -- specifically, how the proposed merger will affect jobs? Are we looking at a net job loss because of redundancies between T-Mobile and AT&T or would there be new jobs created if the Department of Justice ultimately approves the merger?

I'll start with Mr. Stephenson, with -- with your views on that. Is there a reason to think that this will have an affect on jobs overall?

STEPHENSON: As it relates to what it does to specifically union jobs, I can go back and -- and tell you what's happened historically when we combined (inaudible) with AT&T wireless. We had the same situation.

Since we acquired -- put those two companies together, the number of union jobs have doubled in our company. And what -- what's driving that? In our industry, it's certainly no different than any other industry, but you only are hiring where you're investing.

In our business, if you're not investing, you're not hiring. You can look at our plain old telephone service business. We're not investing over there anymore. And you know what's happening to -- to employment. Employment is decreasing.

In wireless, we're investing. We're investing aggressively, and so employment continues to grow in our wireless businesses.

This transaction when consummated, to build out the LTE footprint, this broadband footprint we're talking about, and to do all the integration required will entail $8 billion of investment over a three-year period of time. Again, in our industry, investment means hiring. This is why the CWA and the unions across America, all major unions have endorsed this deal because there will be hiring associated with that investment.

Now, I don't want to mislead anybody. If you put two companies together like this, there are redundancies, that we will not need two finance organizations, for example, and we will not require two marketing organizations.

And so we'll have to address areas where we have redundancies. We have a long history in terms of how we address those. In fact, Larry Cohen of the CWA and I directly negotiated five years ago a concept we called JOG. It's called the job offer guarantee.

And the way we manage these surplus situations is we offer each employee a job within a certain geographic area. And it's allowed us over the last few years to very effectively move employees out of declining businesses into growth businesses. It's very elegant. It doesn't happen real quickly, but we do get there. And using that through attrition, we believe we can manage through this.

DEUTCH: And so I -- I think the -- the ranking member was getting at this earlier, but ultimately, then, I understand there will be an increase in union jobs. Is there -- if -- can you tell us -- is there anyone in the panel that can tell us or give -- give their forecast on what this will mean to -- to jobs overall? Will there be a net increase?

Can we estimate what that increase might be? What -- what will we see? How will this affect the -- the labor market?

STEPHENSON: I've not been able to do a detailed analysis literally of this organization. Traditionally, what you will see is through attrition there will be a short-term reduction in jobs, through attrition and through the process we discussed.

But both of us have a large labor force that's been outsourced a lot of them out of the country. Our commitment has always been if we have to go down in redundancies, we go down there first and not in the United States. So I think, in general, in the short term, there may be a modest reduction, but, over the two to three-year horizon, this should be a job creator. It historically has been.

DEUTCH: OK. Mr. Obermann?

OBERMANN: If you can agree to the assumption that there is an additional build-out enabled by this merger, then you can also assume that the stimulating effects on jobs are significant by broadband build-out, by additional broadband facilities and by building out the networks that has a very stimulating effect on the economy overall that is supported by a number of studies, which we may deliver after the meeting.

DEUTCH: I -- I would thank you.

Mr. Chairman, it would be -- it would be immensely helpful I think to -- to see some -- to understand better the -- the possible downturn through the reduction short-term, ultimately, the increase is long-term. If we could get a better appreciation for what that would look like, I think that we'd -- certainly I'll be better informed. And it would help in this process. And I yield back.

DESAI: Can -- can I just quickly comment on that if that's OK? I would just point out that AT&T has reduced their workforce (inaudible) over the last nine years. So it's hard to see how moving forward they will continue to increase that workforce.

STEPHENSON: May I address that? If you look at this as a wireless transaction and if you look at our wireless business over the same time horizon that Ms. Desai just articulated, the wireless workforce has been increasing steadily and in fact significantly. The declines have become on the side of the fixed line business which those businesses are declining and we've, I think, done a nice job of using attrition to manage those workforces down as well these job offer guarantees I discussed earlier.

We work very hard by labor union to try to migrate our workforce to the growing parts of the business.

GOODLATTE: I thank the gentleman.

The chair now recognizes the chairman of the Oversight, the Government Oversight Committee, the gentleman from California, Mr. Issa.

ISSA: I thank you, Mr. Chairman. This has been very, very interesting and I guess since my committee oversees the Post Office, we've lost almost 200,000 jobs over the last decade, union jobs, guess what, if the business goes away you're going to lose those jobs but I'm going to take a different tack.

You know, having been at the first Chicago show when cellular was rolled out and we were all so excited for this regional phenomenon that might catch on and allow us not to carry suitcases as our telephones and talk to operators who would then connect us. As I've watched this go on from analog to digital and so on I've seen one thing which is that first of all the tie-in with wire lines does concern me.

The fact is we're reassembling a duopoly on the backend and I'm going to want to know in this process as we look at it that the protections for the remaining wireless carriers because I remember when it was wire line and, you know, you basically cut this into two groups, those who had wire and who didn't initially and I am going to want to be concerned for the remaining non-wire line carriers of which there are a very large amount with a very small amount that they -- that back haul capability is delivered at a fair price. Having said that I want to mostly talk to Mr. Obermann. You're not putting money into your business and you're losing market share as we speak, right?

You're not putting sufficient money into your business. You're a 2G and 3G sort of entity with no role out of new technologies, that's roughly a fair statement without insulting your company?

OBERMANN: No, I think that contradicts the fact to be honest because we've invested more than $30 billion, significantly more than $30 billion...

ISSA: Are you behind AT&T in technology rollout today?

OBERMANN: I'm sorry?

ISSA: Are you ahead or behind AT&T in technology rollout?

OBERMANN: But we are...

ISSA: High speed, you know, data.

OBERMANN: We are not on the same level in terms of network coverage but we cover about 280 million U.S. customers.

ISSA: So you have less coverage and back to the original question, your data speed enhancements, your investment in new data and in the bandwidth to go with it, are you ahead or behind AT&T?

OBERMANN: No, as we speak today we have a good performance on our HSDA-plus network. We can well compete but the fact is that going forward we cannot upgrade our network to the next-generation technology called LTE and that is faster and more efficient and it has a couple of advantages including efficiency gains.

ISSA: OK, so cutting you off a little bit here but for sales purposes you'd say you're not behind, you're not this and that but your forecast is you're clearly not going to stay up, you're going to become the behind carrier in the current projection based on the capital available.

OBERMANN: In the longer term we're liking the essential prerequisites to upgrade the network and currently I must say that we're a little stuck in the middle because we're attacked by a number of value-based smaller players. They are as my neighbor said more than 100 in his association alone and I think we haven't mentioned the fact that every market including the market in California, they have four or more facility-based carriers in almost major market and there is a lot of competition and as much as...

ISSA: OK...

OBERMANN: Attacked by a number of smaller players.

ISSA: Right and I've got more questions for your answers if you can bear with me. So I'm looking at a company that is being offered $39 billion today. You're the only two major GSM players today. If somebody wanted to buy you then that wasn't GSM based what would you be worth versus the $39 billion we're talking about here today?

OBERMANN: I'm afraid I cannot answer that question, sir.

ISSA: OK. Well I'm going to guess you're worth about half as much to anybody who other than the partner that is willing to pay. To me the real question here today is, is this a synergy that's good for the market, is this in fact the highest and best value for your stockholders, I think it's undeniable, does it allow for the bandwidth which is probably about half of your value or maybe plus or minus a little bit to be used efficiently by a new carrier.

I've got a yes to all of those. My real question to Mr. Stephenson is, how am I going to be comfortable that all of these smaller players that remain, and I use that term not to be negative to them but like percentage wise that they're going to have access to get their cell towers efficiently delivered to you, you're not going to roam with them, you're not on the same standard today, but how are they going to be assured that they're going to get fair value versus you and Verizon that have competitive advantages on that legacy part of your system?

STEPHENSON: In terms of the backhaul?

ISSA: The backhaul, you've got it.

STEPHENSON: As I've said earlier we're outside of our footprint which is 40 percent of the U.S. roughly. We're having to buy this both in rural as well as urban America. And we are finding multiple options for buying backhaul across the United States and they will tell you the same thing. We have multiple options.

By the same token, I think we do a very good job of offering backhaul to anybody that comes to us. It's actually a very good business for us. It's a very competitive business. The pricing discipline is in the marketplace and we're seeing it today and there is, again, an FCC proceeding on this issue right now where this is being addressed to ensure fair and good price access to these facilities.

ISSA: Mr. Chairman, I hope that as we continue with this process we will look at that whole question of whether an incumbent monopoly, two incumbent monopolies in fact on the wired side, the backhaul side as we are talking about here today are going to be looked at very carefully. I wasn't when Judge Green executed the breakup but now that it's reassembled I hope that this committee will look at that part of it.

I have no doubt that this is a good deal for the synergies of the wireless but I do want to make sure that I'm very, very cognizant of how the wireless companies are treated relative to the wire line part of these two companies that will remain.

Thank you, Mr. Chairman. GOODLATTE: Thank you, Gentleman. The gentleman's point is well taken and we certainly will be following that aspect of this issue closely.

The chair now recognizes the gentlewoman from California, Ms. Sanchez for five minutes.

SANCHEZ: Thank you, Mr. Chairman. I want to thank you for convening the hearing today to talk about this important proposed merger. The wireless industry has consolidated previously and yet much likely saw when this committee examined the Comcast NBCU merger in the last Congress.

This merger has aspects that simply did not exist in previous mergers, so I appreciate the testimony of all of our witnesses here today.

Wireless is increasingly becoming more and more necessary for people to keep up with technology and to manage their lives. I know that members of Congress would be lost without their wireless devices.

So I'm interested in some of the information that I've been hearing and, you know, there are parts of me that like some of what I'm hearing and there are parts of me that don't like some of what I'm hearing. So I'm going to try to pose a few questions to get at some of the things that are niggling at the back of my mind.

Mr. Obermann, I want to start with you and maybe it's because this merger has made me more aware but I've taken notice lately of the TV ads that T-Mobile is running on television and I've seen the ads both in California NTC and there are identical television ads across the country. And it seems clear that T-Mobile seems to be competing nationally with customers across the United States who have similar wireless needs.

And I'm interested in knowing for, you know, the discussion on competition and whether competition will be, you know, thwarted because of the merger. Do you -- I mean, would it be a fair statement to say that you believe that T-Mobile competes with AT&T on a nationwide basis and has a nationwide customer base?

OBERMANN: Well, first of all the reason why we're going heavy into the advertising campaigns on network is because our network perception -- one of the reasons for customers to churn has to be improved. And we've worked very hard to improve our network performance and we try now to make the best out of it in terms of marketing.

Do we compete nationally? In fact I would argue that this market -- the regional market varies a lot and the competitive situation in every market is quite different. And there are very good examples for that. For instance in California -- sorry, in Florida you have companies like Metro (ph), CCS (ph), which are very strong. In fact I believe they are either number one or two in Miami.

You have in other markets such as Wisconsin you have U.S. Cellular being very strong, if I'm not mistaken and therefore you have in different regions, different strengths of players, and different propositions. We recently changed our approach and we're now going more regional with regards to promotions and campaigns because customers really make their choices locally.

It is more important that when you live for instance in Ohio, that your local player, your local service provider has good coverage, and good devices, and good terms and good rate plans and so forth, and therefore, customers make local decisions. We are now therefore going more aggressively on the local level and compete more locally and recognize that fact.

SANCHEZ: OK. Maybe it was the ads that I saw that are identical in both (inaudible) of the nation but there seems to -- poke fun at AT&T and so I was -- you know, it seems to me that if you look at the promotion and the advertising that it seems that you're in direct competition and that's an important component here because when we're talking about two market players that compete against each other potentially merging there are implications for how much competition remains if that were to happen.

Mr. Stephenson, you spoke in your testimony a lot about the impact on rural customers and trying to reach more customers to provide coverage. My district is not a rural district and so I'm curious if you could please let me know what is the impact of this merger on urban consumers, specifically if you even want to get more local California or the Los Angeles market to be specific?

STEPHENSON: Los Angeles, San Francisco and New York have been our greatest challenges over the last three or four years because of the advent of these Smartphones and very specifically the iPhone. And the volumes that these devices are generating in our network has been very, very dramatic.

We've talked about the spectrum situation, the need for more spectrum. The way to mitigate or to extend the utilization of your existing spectrum, one of the key ways is to build more cell sites. You get better utilization out of your existing system. California is a classic case where we have been building aggressively the number of cell sites we're trying to deploy.

As you know it's not very popular to come into L.A. or San Francisco and put up a new cell site. The permitting and the zoning is very, very burdensome. It can take two and even three years to get permits and zoning to build a cell site in those areas. And so, it really extends the time frame to get service quality improved in places like those.

The significance of this transaction is T-Mobile has a very significant cell site grid that we put with ours. It is the equivalent in both of those cities in California of accelerating our cell site build by eight years the day we close it. So you begin to do the integration of the networks but you now have a much more dense cell site grid. More cell sites means better service, more cell sites means you are dropped calls or blocked calls and better data throughput speeds. So that's one of the most attractive aspects of this. Rene's company and mine, we operate on the exact same spectrum frequencies which is very advantageous. It makes us go faster and we use the exact same network technology which will make this go faster. His 2G customers that he spoke of earlier.

Literally the day we close this we can over the air redirect his customers to our 2G networks so they have a very rich spectrum access and get in-building coverage immediately and we have access to his cell towers. So there should be a very quick lift in service quality.

SANCHEZ: My time has expired. I have additional questions that deal with consumer issues that I would have loved to get to but I will submit those in writing for our panelists and I would appreciate your responses and I will yield back.

GOODLATTE: I thank the gentlewoman.

The gentleman from Indiana, Mr. Pence is recognized for five minutes.

PENCE: Thanks, Chairman. And let me begin by thanking you for today's hearing on this proposed merger. I also want to welcome this distinguished panel for what has been an illuminating and informative conversation.

And I expect much of the public interest in this is reflective of the fact that we are growing completely dependent in our economy and in commerce on these terrible gadgets which to me should have a chain attached to them and be the size of a cannonball.

I actually got my first Blackberry, Mr. Chairman, when I was first elected early in 2001. They were being offered to members of the Freshman classes, something of an affectation. I got one because my chief of staff lived and worked in Indiana which he still does and I said, "You mean that little gadget would let me talk to him at any time?" And he said sure.

At this point in history you all might be interested to know that on 9/11 when my Blackberry was working in the security building when nothing else was working. The congressional leadership, this has been documented, started to make inquiries about why cellphones weren't working and these Blackberry things were and a week later they were issued to every member of Congress.

So the conversation about how we continue to expand the availability of not only voice transmission but data transmission has expanded rapidly in my short tenure in the Congress and the impact on this business merger relative to continue to widen that to every American I think is what is of most interest to every one on this committee. And I am intrigued by some of the dialogue.

Mr. Stephenson, you were just talking about the symmetry between the 2G technologies, between AT&T and T-Mobile. Correct me if I'm wrong but AT&T, about 20 percent is the 2G, about two times that with T-Mobile. You said that the ability to immediately integrate a large portion of your T-Mobile's customer base and begin to immediately provide data and information services would become available as opposed to looking at months or years before that happened.

T-Mobile has a significant presence in the Hoosier state, we're grateful for that. I guess my questions would be first practical and maybe the two on the end of the table there that could address this would be...

Mr. Stephenson, AT&T is committed to providing LTE coverage to more than 97 percent of the population, that's a big increase, prior to this announcement, would like you to speak to how that is -- and you've addressed this broadly but would welcome your additional comments on how this merger will further expand the availability of this critical technology of rural areas like my district and all across the state of Indiana.

And secondly would -- since T-Mobile does have a presence in Indiana we continue in Indiana as we do around the country to struggle in a difficult economy and I am struck by some of the other testimony about workforce reductions, understandable in a hard economy. Companies are making tough decisions but would like either one of you to reflect on what impact this may have on jobs in our area or more broadly.

STEPHENSON: I'll start, Rene, and I'll let you chime in where you see fit. The rural broadband build out, I'll go back and I just want to drill down one layer deeper in terms of what's required to deploy these mobile broadband services.

And I've said it earlier but it's important to reinforce that you can't just go out and deploy these services on top of existing technology. You have to have new unused, clear, clean spectrum to deploy these services and it has to be rather large blocks, 20 megahertz and it probably doesn't mean anything to most of you but that's a big block of this spectrum.

And there are a number of places where we have of spectrum particularly in the lower bandwidth, 700 megahertz. And in those areas we are building. Places where we don't have the 700, there is a higher band or higher frequency band that we're using. And we don't have good, ubiquitous coverage of that throughout rural America. That is the same spectrum where T-Mobile has deployed their 3G technologies.

And so, the beauty and the elegance of this transaction is that it will allow us to put these two networks together. We can begin to move the 3G technology out of those bands of spectrum, clear it out for 4th generation mobile broadband, particularly in a lot of these rural areas.

So it cleans this out and it gives us a spectrum position to really begin to ubiquitously deploy this capability. And I'll say it again. There's a further profit enhancing reason for this, he has a rather large customer base that we can leverage also and then frankly, we can make money in rural America which I think is what is always been the incentive we've been looking for. And so, there's a profit motive with a private market solution to accomplishing objective that allow us to do this 97 percent coverage.

OBERMANN: Just a complement to keep the information not related to the labor project but to our presence and relevance in Indiana. We only have 2 percent in -- in some markets such as Indianapolis, 7- percent share.

Other players such as U.S. Cellular and (inaudible) cricket as well as Rebel and then I'm not quite certain whether all the others (inaudible) AT&T and Verizon are there as well. There's quite a contested area, a very competitive environment there. Our market share in that area is fairly small.

(UNKNOWN): OK.

(UNKNOWN): One more thing, we have a long history in terms of employment in the State of Indiana. And the State of Indiana has done a number of things in the past to clear roadblocks for us to deploy broadband.

We've always made commitments on our investment, our deployment, our hiring. And we have always hit those. And I think we have a good track record in Indiana. This is a specific case where Indiana will be affected exclusively by the rural bill.

And, again, investment in our industry means hiring, so there should be a net job creator in the State of Indiana specifically.

PENCE: I appreciate that very much. And Mr. Berry?

BERRY: Yes, Congressman Pence. Thank you for the -- for the opportunity. We have six members of RCA members in your congressional district. And yet they want to roll out broadband as dearly as everyone else.

I sort of dispute that the contention that you need claim, fair, unused spectrum in order to roll out broadband I mean first broadband 4G network has rolled out by a metro PCS with 1.5 Megahertz of spectrum. Granted they're going to grow and we hope they will grow all over the nation.

But normally, when you're adding on to your house, you don't normally buy the next house next door until your sitting room's finished. You can be managing the network, do both. And that's what the small carriers are doing right now. They're rolling out 4G, highest paid 4G in your area right now.

If we have interoperability and data rolling, then Randal Stephenson and -- and AT&T and T-Mobile will have many partners in doing that. The 55 million people that you talk about, that's -- that's AT&T new potential users.

It doesn't mean that those 55 million people right now don't have some coverage or broadband capability by other users, other carriers. PENCE: Well, I'm just -- I'm someone that really believes, the chairman knows, competition and my objective is to create and support policies and practices that create a level playing field.

And I believe Mr. Chairman and you represent a little early too, we get this technology out to rural America, medium-size cities, small towns, we'll show the east coast and the west coast a thing or two about job creation and growth.

GOODLATTE: I thank you, gentlemen. My rural area is on the east coast. The chair now recognizes the gentleman from New York, Mr. Nadler for five minutes.

NADLER: Thank you, Mr. Chairman.

Ms. Desai, one solution you proposed for AT&T to increase its capacity is to build more infrastructure, cell towers for example. But I'm sure you'd agree that building infrastructure takes time. And let's assume that AT&T is correct that a combined AT&T, T-Mobile entity can use its combined spectrum more efficiently than the two companies can separately.

Wouldn't we increase capacity a lot faster by having AT&T and T- Mobile combined that we would by waiting for either or both to be able to build -- to build cell towers, buy spectrum et cetera?

DESAI: Sir, I think when you try to combine between the two networks, it's still going to take time to convert.

NADLER: But wouldn't it be faster?

DESAI: I -- I don't think it's clear that would be faster. If they invest in the network now, they have -- they have the spectrum. They have the assets invested in the network now rather than trying to integrate T-Mobile customers into AT&T customers. I think that's the question.

NADLER: Thank you, Ms. Mr. Stephenson, would it be faster?

STEPHENSON: No, sir, it would not. In fact, your particular market is a specific example of where you would get overnight efficiencies if you combine these two networks.

NADLER: And so, just like I said, would it be faster if you combine them than if you didn't?

STEPHENSON: Oh.

NADLER: Yes.

STEPHENSON: If we put these two networks together, it's a much faster path to improve service.

NADLER: And so, Ms. Desai is saying it's the same. And you're saying it's much better. OK.

STEPHENSON: Much faster.

NADLER: Ms. Desai, since 1999, the overall crisis cell phone service has declined an inflation of adjusted terms. There are a lot of mergers in that period. Does this suggest that your competitors doesn't always mean higher prices?

DESAI: So, I think that data relates to voice prices. And voice prices should go down especially in the (inaudible) of serving -- providing voice service has gone down.

So, I think it's natural over 10 years for voice.

NADLER: Natural because of better technology, it has nothing to do with (inaudible).

DESAI: Right. And it's cheaper (inaudible) voice service. But more and more people are now using data service. And we have seen that in the last almost 10 years the average revenue for user nationally have gone up for carriers.

So, we are seeing that revenues are going up in average -- they are (inaudible) average per user is going up. So, I think if you ask most of the people in this room, they'd say that their cell phones have actually gotten (inaudible).

NADLER: OK, thank you. Mr. Stephenson, obviously, and several other -- several other members have alluded to this before, key question for the anti-trust review is whether the analysis has done assuming one national market or multiple local markets.

Viewed as a national market in terms of 2010 revenue, combined AT&T and T-Mobile would control 44 percent, Verizon 35 percent, and Sprint 16 percent, would essentially be a (inaudible) and serious (inaudible) in any traditional anti-trust analysis.

Now surprisingly in your testimony, you dispute relying on national markets and suggest we should be looking at each individual market. You say that quote, "Wireless competition occurs primarily at the local level and there are many strong competitors in the marketplace besides Sprint, Verizon, and AT&T. And this is inconsistent with your STC filing on this transaction.

In 2008 however, AT&T took a different position. As part of its acquisition of Centennial Communications, David Christopher, AT&T's chief marketing officer signed an affidavit to the FCC in which he very clearly argued that AT&T compete in the national market, that regional operatives like centennial were not real competitors.

For example, he made the following statements, I'm just going to read one out of that declaration, AT&T makes (inaudible) -- this is a quote, "AT&T makes nearly all competitive decisions in response to national competition. AT&T offers national plans to give subscribers a consistent number of minutes of service for a single monthly price, with no roaming charges, and does not provide regional, local plans that vary depending on subscriber location. These statements and there are a couple of other things and I don't have enough time to read, mirror what the AT&T has called the FCC with respect to other transactions in the past.

So, why would you say that -- there's clearly a reverse or at least apparently, I should say, if I'm wrong, tell me so. But there's apparently a reversal in AT&T's position on this national versus regional market question between 2008 and the Centennial proceeding and now.

One, do you agree that there is such a reversal? And (inaudible) what you attributed?

STEPHENSON: Yes, certainly, we make that assertion in 2008 and we've done it in another timeframes as well. The FCC and the Department of Justice have consistently and routinely rejected that. They have consistently and routinely said that these markets are local markets, that the customer's decision is made at the local level.

And I would tell you over the last three years, there has been a significant change in this marketplace. When we made our analysis of this -- this particular transaction, our view was that this local marketplace has changed.

And if you look at San Antonio, if you look at New York versus Miami, those markets are fundamentally different. Our key competitor in, I think, the Valley for example, our key competitor in there and in Miami are Leap and Metro PCS. They are the focus of our competition.

You go to Houston, our key competitor is Verizon. You go to New York.

NADLER: Excuse me, well, wasn't that true in a few years ago also in any local market?

STEPHENSON: Well, the market has fundamentally changed. Metro PCS and Leap are the basic examples of where this is changing. The fact if you look at the last quarter, in the last quarter, the larges gainers in the mobile industry were those two providers, Metro PCS gaining 700,000 customers, (inaudible) gaining...

NADLER: So, in other words you're -- you're -- you're giving me two answers, you say one, the market has fundamentally changed. And two, even before the market changed, the FCC said, "Look at the local markets?"

STEPHENSON: It's officially (inaudible). This is the DOJ actually consistently told us, these are local markets. And so, that's where we are.

NADLER: OK. Thank you. My time has expired. Thank you.

GOODLATTE: I thank the gentleman. We have just a few minutes left and a series of votes. The series is going to go on for a long time. We have several members of the committee who still wish to ask questions.

So, we will reset the committee. We encourage you to go out and get some lunch because this is going to be an hour, probably longer than that. And then we will reconvene just as soon as these series of votes ends. The committee will stand in recess.

(RECESS)

POE: I could use wireless technology. Somewhat ironic isn't not? Thank you Mr. Chairman. Thank you for being here and coming back. Mr. Stephenson, I want to talk about some issues regarding coverage.

97 percent with the merger, 97 percent of the country will be covered. I want to know kind of where that 3 percent is. Here's the background. When I go down to the Texas Mexico border, ranchers don't have cell service in every area.

Recently I was in Arizona as a guest of Gabby Giffords and her staff and while I was down on the Arizona boarder with Mexico, no cell service, except I was getting service from Mexico. I don't know if it is -- it wasn't Mexico Bell, but it was something.

And that was the only cell service I was getting. Bob Krints (ph), his wife, Sue, and many of the other ranchers in Arizona believe that the reason he was murdered was because when he was ambushed, he could not use his cell phone.

And so, I've introduced, with the support of Congresswoman Giffords, legislation to try to get a private-public partnership so the ranchers can have cell service on the border with Mexico for national security reasons.

My question is, is that 3 percent going to be -- still on the border with Mexico or is that going to be covered with this merger?

STEPHENSON: Sir, I can't tell you definitively. I don't know. I would have to go check it out. But I will -- we will respond for the record to let you know where the -- the coverage as it relates to the border is.

As I look at the maps, it tends to be in the very mountainous regions and particularly in the -- what we call the square states, so the Montanas and -- and Idahos are some areas in there.

They're just quite frankly, it's very difficult to cover. But I'll have to get back to you on the border states. What I would suggest, Congressman is irrespective, that 3 percent still has to be a goal of ours.

I don't think we as a country should give up on that 3 percent. What I would offer and suggest is as we build these networks out and as private capital finances the 97 percent, then we can really turn our attention from the universal service fund standpoint to the 3 percent. And I -- I reinforce that that is probably an achievable goal from the public policy standpoint rather than universal service funds trying to cover 20 or 15 percent. But I'll have to get back to you to tell you exactly where we stand as it relates to the border areas.

POE: I appreciate that. And I have a list of questions that I'll also submit for the record and send the answers back to the chair if you would (inaudible).

I think universal coverage is important. But it's especially important to people who live on the border because of the national security or their own personal security rather that they have a -- a very strong concern about throughout those regions.

Mr. Berry, did you want to weigh in on that?

BERRY: Well, I just want to say, the 97 percent, as I understand it, is 97 percent of the population, not 97 percent of the geographic territory of the United States. Many of the small area like the ones I represent have lower 700 Megahertz (inaudible) spectrum and they have a geographic build-out requirement.

Most of the spectrum that Verizon has and most of the spectrum that AT&T has -- has a population build-out requirement. And so, there are two different requirements, you know, for the same type of spectrum. But if you cover 97 percent of the population of the United States, you're probably still short around 13 to 15 percent of the geographic territory in the United States.

STEPHENSON: Oh, no, it's much higher than that actually. 97 percent of the population is only 55 percent of the land mass. So, there's 45 percent of the land mass that -- that will not be covered by this bill which is 3 percent of the population.

That's why I say I'll have to get back to you.

POE: All right. Thank you very much for that. South East Texas where, as you know, I represent, I've had some concern with people that have Cricket. They think Cricket is going to go out of business with this merger. Weigh in on that.

Are you going to put them out of business, Mr. Stephenson?

(UNKNOWN): I think you are. I think you're going to put them out of business.

STEPHENSON: There's no indication of that yet. In fact, I would suggest that you (inaudible) cricket, Metro PCS, this what we'll call no contract participants have done, I believe, a very masterful job at penetrating the lower end of the marketplace with low-end price plans and then what they've been doing of recent is bringing smart phones into the marketplace and moving up into the mid tier of our customer base.

So, obviously, at the mid tier, there's starting to be some more definitive competition. But if you look at the last quarter results, Congressman, what you'll see is those two companies together added a million subscribers.

So, Leap added 300,000 subscribers, Metro PCS same type of company added 700,000 subscribers as opposed to T-Mobile who actually shrank in the first quarter of this year and Sprint adding a million subscribers.

So, they're actually the fastest growing in the industry at this point.

POE: I'm out of time. I have some other questions I'll submit for the record with the chairman's consent.

(UNKNOWN): And Mr. Poe, I don't want Randal Stephenson just to brag on my members alone. I think we also indicated this company who is very successful in having 1.9 million new customers and Verizon with 1.7 million new customers in the last quarter.

So, I think the entire industry from the most part is growing and consumers are accepting the type of product that we're putting out there.

(UNKNOWN): (Inaudible).

DESAI: Can I just quickly add.

GOODLATTE: Yes, Ms. Desai, you can (inaudible).

DESAI: So, the GAO (inaudible) found that the more concentrated the market gets, it makes it easier for the larger carriers to grow. But it makes them more difficult for the smaller and more regional carriers to grow because of entries of barriers, barriers to entry.

So, the bigger that the companies get, it makes it more difficult for these smaller carriers to compete. So, I think we should be concerned about what happens to smaller carriers.

POE: OK. Thank you, Mr. Chairman.

GOODLATTE: Thank you, gentleman.

The gentlelady from California, Mrs. Lofgren is recognized for five minutes.

LOFGREN: Thank you, Mr. Chairman. And I think this hearing is a helpful one. I think these are very difficult questions that we're facing. And, you know, as I think about this, you know, with this merger, we won't be entirely back to where we were when Judge Green had the case, but we're definitely moving in that direction.

And when I think about what we accomplished with Judge Green and the Telecom Act in '96, not just in your space, but the innovation that -- that was the result of that is astonishing.

I remember a time when you can only buy your phone from Ma Bell. And now you've got smart phones. That innovation was because of the competition that happened. So, not to have a competitive environment does concern me a tremendous amount.

On the other hand, I listened carefully to what Mr. Obermann said and it sounds like you've made the decision, your company has made the decision, you're not going to build out to 4G. And if you're not going to build out to 4G, you're not going to have a customer base.

So, my question to you Mr. Obermann is this, what is the Department of Justice says, "You can't do this merger." What do you do then?

OBERMANN: The situation is that we have to develop 4G-based, 4G services with our HSPA Plus network; 4G is the term which we can also claim for us...

LOFGREN: All right.

OBERMANN: ...that the existing network, we've upgraded it to, you know...

LOFGREN: Well, let me just say you've made your decision. I don't want to argue on who's claiming 4G that isn't really 4G. But you're not going to make the next level of investment you said.

OBERMANN: No. I said that we're making the pre-condition to build our network from what we have today which is HSPA-Plus to the next generation technology based on LTE, Long Term Evolution; that is a technology that will offer more speed, more efficient (inaudible)...

LOFGREN: So, you're not going to do LTE?

OBERMANN: Which we cannot do given our spectrum position. And also it would require significant -- even if we have the spectrum, it would require significant additional investment.

LOFGREN: No, I got that. The question is if the Department of Justice says -- nixes this deal with you and AT&T, what is your company going to do?

OBERMANN: Well, we will, obviously, try to make the best out of what we have and try to compete. But let me clear on this, this would be, over longer term, would be very difficult. We've been in a very difficult situation. We'd probably have to change our market approach completely. You know, I don't think we'd end up there. Because once the facts are on the table, you'd see the benefits of this transaction and I'm sure that these benefits are good enough reason for this merger to be approved.

So, I don't think we'll end up in that scenario. I think there are very good reasons. The benefits are enormous for all customers, for AT&T customers and for the market as a whole.

LOFGREN: You know, I was thinking that if this merger goes through, the obvious response is going to have to be a heavier regulatory load in the wireless space to try and preserve some competition. And then, I was remembering Covad which was in my district. And I remember as Covad started as a DSL provider, AT&T was required to allow them access. But they had to have more lawyers than engineers because they had to file lawsuit after lawsuit to enforce their rights.

So, I am wondering if the two professors have any advice for us in terms of how effective an increased regulatory approach to the FCC in the wireless space would be if this merger goes through.

WRIGHT (?): Thank you. With respect to -- a short answer is going to be it depends on the problem that you're talking about with respect to, for example, roaming, there is a, as I understand it, a regulatory framework in place with respect to those concern.

With respect to concerns some have raised, for example, with backhaul issues -- although, I stated in my earlier testimonies that I don't think that those raise a particular concern here given that -- not in that space...

LOFGREN: I'm almost of out time. I don't want to appear rude. But I've got just a few seconds left. Professor Gavil, one concern that has been expressed is that with a duopoly or monopoly you would actually have the ability to deter innovation outside the space. What could the FCC do about that?

GAVIL: As I understand it, right now, that would really not be directly in their realm of regulation. That's one of the things I am concerned about.

I think on your first point, as I indicated at length in my prepared statement, I am very concerned about returning to a regulatory scheme that is a combination of the FCC, the Department of Justice and the federal courts. I think we tried to get away from that in the Telecommunications Act and I think that a negotiated settlement of this deal would be a step backwards from the kind of competition framework that the Telecommunications Act was designed to create.

And in terms of innovation, we're going to essentially have two gatekeepers that will be picking winners and losers in terms of technology. It will be very difficult I think in that setting for new handset developments, new operating system developments, to breakthrough into the market.

There will be fewer choices in terms of carriers with sufficient customer base, to attract the capital it takes to innovate on a large scale.

OBERMANN: Congressman, please give me a chance to disagree with that. I think it's not -- there is going to be enough competition. I just happened to find an ad where a new company called Lightsquared is announcing that they are going to build out a broadband network and that this will be nation-wide build out network today.

There are plenty of other regional or large facility-based carriers such as Sprint and the regional ones. We don't have such a constrained competition. We have extensive competition in this market. And the market shares in the respective markets speak for themselves. There are some markets where U.S. Cellular or Metro or Leap or others are very strong players, where they are stronger than us. We have intensive competition and we'd create more capacity which was badly needed and that would even enhance competition further.

BERRY: If I may...

LOFGREN: It's up to the Chair. My time is up. So...

GOODLATTE: Mr. Berry is allowed to (inaudible).

BERRY: Well, real quick just on that. I'd like to quote John Stankey who is the head of AT&T enterprise business. Just two weeks ago, you said that Clearwire and Lightsquared, which Mr. Obermann has just mentioned, would be better all consolidating into best hope for the U.S. mobile wholesale market providers is that they should swallowed up by a merger. There is really isn't a profitable wholesale merger market in the wireless industry today. And to suggest that my regional carriers are potentially equal and competitive advantage to AT&T and Verizon is just not correct.

We would say in Virginia that "That dog won't hunt."

LOFGREN: Thank you, Mr. Chairman. My time has expired and I appreciate your indulgence in letting me go over.

GOODLATTE: I thank you, gentlemen. The Chair now recognizes the gentlewoman from Texas for five minutes, Ms. Jackson Lee.

JACKSON LEE: Let me thank you very much. And our committee has really been consistent with our diligence in oversight over number of mergers that have occurred or have been proposed over the last 12 months to two years. So, I thank the Chairman and the Ranking Member as well.

Some of these questions have been asked and maybe asked again. But I'd like to pose them in a way of trying to deliberate on solutions and to also focus on accountability.

Let me be very clear. I frankly believe that Section 7 that we repeat so frequently does not have the framework and the teeth to do what we need to do. In my conversation with some of those in the Justice Department who have responsibility for that oversight, they would admit that it is not a particularly piercing step of criteria that allows for what I would call very, very detailed and strict review. That was evident in my perspective or from my perspective personalized view of United Airlines and Continental that I still consider a questionable decision.

But I think that we have some opportunities going forward in this instant to see what our solutions are. I think it is important to consider the driving factors in one of those telecommunications industry, those offering that drive, consumer decisions, price, service quality and variety of devices. And we have a world of devices.

In addition, I think it's important to note and put on the record, that AT&T is a union company, and its union friends or workers are in support of it. That's an important statement; albeit, that job decisions have to be made.

So, I am interested into AT&T's representative, in particular, what would be measure that you will be able to evident that will ensure that the company's expansion minimizes the number of job loss particularly since T-Mobile has overlapping if you will job descriptions and positions? In addition, T-Mobile and others have lost less jobs than what AT&T has decided to do as they have merged or have been involved with other smaller companies. What is the measure of -- what kind of commitment? What kind of measure do you utilize or will you present to the DOJ, to the FTC on the lack of job loss, Mr. Stephenson?

STEPHENSON: We report to, obviously, both the Department of Labor and then to our external public the level of jobs in our company on a routine basis. What I would expect is that if one were to look at our wireless business which is this wireless merger that one could look at the employment level in the wireless business to ascertain what's happened to employment over the -- you know, you pick a period of time or whatever period of time that we evaluate this. There are going to be a lot of things going on.

The primary thing going on that I think is going to be most important is the broadband build out; that's an $8-billion investment over a three-year time horizon. And I think there are a couple of things that we all ought to evaluate.

I'll tell you what I'll be looking at 97.3 percent population coverage of broadband. Do we achieve that? The investment required to get there, the $8 billion -- because the $8-billion investment is what will drive the job creation. It's $8-billion being invested. (Inaudible) the coverage, it's the money being spent; it's the investment being put in the ground, of the cell sites being constructed, et cetera, the antennas being erected. So, can you evaluate those? Those are the metrics you'll look at whether this merger is doing what you want it to do.

JACKSON LEE: Mr. Stephenson, you understand the inquiry because we've had these hearings before. Certainly, I've had some wonderful briefings and explanations. I think it is the question of "How serious the company will be in not going down the pathway?" You have the opportunity for expansion. You need spectrum. You need broadband. And so do, poor communities and rural communities where I think there is an intent to serve.

Why can't we simply say, "We're creating jobs."? We don't need to lose jobs."? You're creating work. You're creating expanded work, expanded reach. Why do we have to lose jobs?

STEPHENSON: Well, that's the expectation. As I said at the very beginning, when you do these types of transactions and you put the companies together, there are redundant responsibilities. Again, you don't need two finance departments and marketing departments. We have a history in how you deal with those redundancies and I think we've been very effective at dealing with them properly and offering folks opportunities to move into the gross side of the business. But this merger is about investment, that $8-billion of investment in broadband build out to rural America. And so, the jobs must go with that.

JACKSON LEE: Can I just ask Mr. Berry? What does this merger need to do for you to make you whole? Thank you, Mr. Stephenson.

BERRY: Thank you for the question.

JACKSON LEE: The ultimate possibility of a merger. How are you made whole?

BERRY: I don't think you can. That's why I said do not think that this deal can be conditioned into approval. I think the basic ecosystem of all the -- not only the companies but the suppliers and vendors that support the tier two and three carriers will be irrevocably changed if you have this merger.

And there will be fewer partners, the partner with (inaudible). There will be fewer opportunities for the smaller carriers to grow and share their nationwide footprint (inaudible) that they need so desperately in order to...

JACKSON LEE: What about cost? Pricing?

BERRY: Well, I think the pricing will ultimately go up. I think if you were -- I think it will go up on several ends. You have this vertical integration that -- and we talked about it a little earlier. Chairman Goodlatte mentioned it. You're going to have a monopoly on the GSM side of the backhaul.

So, it's not going to be multiple people setting a comparative price on the backhaul...

JACKSON LEE: Mr. Stephenson, can you just quickly answer? It's a rural area. You're talking about expanding broadband into the rural area. I don't want Mr. Berry to go out of business.

STEPHENSON: There is an interesting fact here, and that's why Mr. Berry and his organization are opposed to this merger. We are going to build fast broadband to rural America. We will be a direct competitor to Mr. Berry and his company that he represents. It will direct full competition. And I thought that's we were about.

And so, we are actually bringing a new competitor to bear to rural America. And so, I understand why they don't like the merger. That doesn't change the fact that it does enhance and bring more competition which I believe is good for rural America. (Inaudible).

JACKSON LEE: (Inaudible).

GOODLATTE: The time of the gentlewoman has expired.

JACKSON LEE: Well, let me thank them. Just put this on the record, Mr. Chairman, and then I'll yield and I thank you very much. You heard me say service, pricing are key elements beside the whole expansion of the service. I just want to pierce even more about the pricing for rural and less economically endowed consumers. Competition is good. I'm going to keep probing that question.

Thank you. I yield back.

(UNKNOWN): (Inaudible).

GOODLATTE: I thank the gentlemen. The Chair now please recognize the gentlewoman from California, Ms. Waters for five minutes.

WATERS: Thank you very much, Mr. Chairman. I appreciate this hearing and I came early and upset (ph), because I (inaudible) very much to learn. I see the work of this committee particularly as it relates to anti-trust laws and mergers, et cetera, extremely important.

And I believe that I and others who are elected by the people have a responsibility to hold regulators accountable to their statutory responsibilities, that FCC is supposed to consider the public interest, and the (inaudible) DOJ is supposed to preserve competition.

And so, I think we should get right in the middle of this. We should understand everything that's going on. We should be able to challenge and that's precisely what I intend to do.

I want to start with a question that I'd like to ask about access, there's been some conversation today about backhaul and special access. In previous comments to the FCC, T-Mobile has said that the FCC should consider fundamental reforms to its regulation of the rates for special access services. That, in T-Mobile's experience, was at least subject to competition. T-Mobile continues to seek an alternative to subsidizing its two largest competitors. But today, AT&T and Verizon continue to supply the majority of T- Mobile's backhaul services.

What implications could this merger have on special access rates and how competitive can smaller carriers be if they have to pay high rates to offer consumers competitive plans?

Mr. Obermann, you -- you started this conversation. Now, what do you think about it today?

OBERMANN: I can say that, Congresswoman, that we sort of made ourselves increasingly independent from the local telephone companies over the last years and that there are now numerous -- or various sources to get special access from such as subsidiaries from -- of utility companies, such as fiber companies, such as cable companies, or you can do it by microwave link. So there are -- it's a very competitive environment. And we've reduced already our dependency on the local telephone carriers.

The merger, as such, Ma'am, doesn't change the situation because we are not selling special access to third-parties. So we are not a part of the competition there. And since we don't sell, the merger between AT&T and us doesn't change the picture.

WATERS: Mr. Berry, I think you had something to say about backhaul and access?

BERRY: Yes. I guess the question I would ask is how do you determine what is a competitive price and a monopoly situation? I mean, normally, in a monopoly situation, the market dominance of an individual company, you know, sort of trumps every other competitive price that's set by market forces. So if you're a GSM provider and you -- there are not -- there's not many alternatives there.

(UNKNOWN): But we're going to face...

(CROSSTALK)

BERRY: By taking T-Mobile out of the market for -- and they're a competitive purchaser of the backhaul, you shrink that market availability and AT&T will fold them into their capability and they will be part of the preference service that AT&T provides.

WATERS: Some of us are going to pay special attention to this. I really am concerned about the jobs, you have answered a lot of questions about jobs and you talked about where your investments are going, where the growth is, all of that. But I want you to know it's a major concern for many members of Congress.

I want to move to something else. In the merger of Verizon and Alltel in 2008, the Justice Department audited Verizon to divest assets in 100 areas in 22 states in order to proceed with its $28 billion acquisition of Alltel.

The Bush Administration's DOJ ordered Verizon to divest wireless businesses in certain areas as well as radio spectrum. Verizon retained Morgan Stanley to sell the asset. However, we learned that AT&T bought the lion's share of Verizon's assets in 79 rural areas. For $2.35 billion, AT&T acquired spectrum licenses, cell towers and 1.5 million subscribers in the deal. Since AT&T phones were not compatible with Verizon phones, all those subscribers had to upgrade and get new phones at a cost that, you know, we have to be concerned about.

But beyond that, I think you know the information about how minorities are using wireless. And from what I can see, Latinos and African-Americans lead the way in the mobile broadband use, subscribing at a rate of 53 percent and 58 percent respectively. That's big. And so having said that, I know we're early in the process, but do you anticipate having to divest any assets, small or rural businesses, as a result of this merger? And if so, have you thought about ways to extend opportunities to small minority or women- owned businesses to participate in some way. I'm really focused on wealth-building these days, job creation and ownership.

Do you have any thoughts on that, Mr. Stephenson?

STEPHENSON: Yes, ma'am. Every -- virtually every transaction we've done over the last few years has had similar requirements that to achieve the approval, there will be certain markets the DOJ will deem to be too much concentration. And so they'll require us to divest networks, spectrum, and customer bases. And so I have an expectation there will be markets like that in this particular transaction that we will have to divest. And I would tell you I have every expectation that we would entertain any number of options of people that come in an acquire these assets. They'll be good-standing businesses. Businesses with revenue streams require some capital obviously to keep them going.

But yeah, we would obviously look at any kind of consideration for other folks we could help, you know, in business development and economic development, and folks who would not ordinarily have an opportunity to do this. We would give that evaluation.

WATERS: Well, I appreciate that. As Mr. (inaudible) said earlier, you know, we get a lot of these conditions in these merges that never get realized. And I am not focused on the conditions right now. I think the cases they made that this may not lend itself to conditions because this is so big, they're talking about creating a duopoly here.

But I still want you to think about minority ownership and participation in a real way. It's about time that minorities who are consumers, who are spending huge amounts of money in any industry be considered as owners in some way. And so I'll be watching that.

Thank you very much, Mr. Chairman.

STEPHENSON: We have done those in the past too, Madam.

WATERS: But I don't know if any of that have been successful at this point.

GOODLATTE: We'll have Mr. Obermann to respond to.

OBERMANN: We've always taking great pride...

(UNKNOWN): I can't hear you.

(CROSSTALK)

OBERMANN: Sorry.

(UNKNOWN): Yes.

OBERMANN: We've always taken great pride in serving minorities, both as customers. We also have preferred suppliers, about 21 percent of our suppliers are from minorities. So our customers, 50 percent are minority. And they will get access, better coverage, better service to -- eventually to the best possible network. And they can keep their rate plans. At least how I understood the (inaudible) in the previous discussion. To me, that's an important point. We care. And to them, it's beneficial.

WATERS: That's great, add to that ownership and, you know, you excite me. OK? Thank you. I yield back.

GOODLATTE: I thank the gentle woman. And I want to thank all of our witnesses today. There's been a lot more activity at this half of the table than at this half. But Professor Wright, Professor Gavil, Ms. Desai, your contributions were all important and very welcome.

And on this side, that you had a lot of pointed questions directed to all three of you. I think you did well with your answers. We have a number of additional questions that will be coming forward in writing and we hope that you will respond to those quickly, so they could be included in the record.

(UNKNOWN): Mr. Chairman?

GOODLATTE: The gentlewoman from Texas?

(UNKNOWN): Yes, Mr. Chairman. As the gentle lady is leaving, I just want to make sure since I understand Mr. Conyers, when I had that line of questioning, that Mr. Stephenson -- a third person is interested in the opportunity for spinoffs and business development. That is myself.

And the other end of it was at the other end of the table. Mr. Chairman, we didn't ignore them. We'll be reading their materials and I really believe this will be a long process that we all will be engaged in.

So I yield back. Thank you very much.

GOODLATTE: Without objection, all members will have five legislative days to submit to the chair additional written questions for the witnesses --

Does the gentleman wish to ask some questions?

(OFF-MIKE)

GOODLATTE: OK. Without objection, all members will have five legislative days to submit to the chair additional written questions for the witnesses which we will forward and ask the witnesses to respond as promptly as they can so their answer may be made a part of the record.

Without objection, all members will have five legislative days to submit any material -- additional materials for inclusion in the record.

With that, I again thank our witnesses and declare the hearing adjourned.

END