California’s Public Utilities Commission promises a thorough review of the merger proposal from AT&T and T-Mobile, now under increasing scrutiny by the state’s regulators for potentially reduced competition and higher prices for cell phone customers.

The PUC has held seven public meetings so far regarding the proposal, with particular focus on what T-Mobile’s exit would mean for rural communities in northern, central, and eastern California.  Under the leadership of Commissioner Catherine Sandoval, California’s review of the merger proposal is proving to be the most aggressive nationwide, surprising even seasoned regulators.

“This is pretty unheard of,” Brian O’Hara, a legislative director at the National Association of Regulatory Utility Commissioners, said in an interview with Bloomberg News. “California’s seems to be the most in-depth review. It’s amazing to me that the PUC is doing so much.”

The public-interest group Consumer Watchdog has recommended a rejection of the deal, saying it will lead to higher prices.  This week, the group sent a letter to Sandoval, the Justice Department, and the Federal Communications Commission opposing the merger.  Bloomberg notes aggressive investigations may force AT&T to sell off a growing percentage of their T-Mobile acquisition to win approval:

With the pressure from California and other regulators, AT&T may have to divest 30 percent to 40 percent of T-Mobile USA’s spectrum and subscribers nationwide, Michael Nelson, an analyst with Mizuho Securities USA, said in an interview.

“I expect the requirements to be extremely high,” he said.

California could even seek to block the deal outright, a step usually taken by the FCC or Justice Department. If federal regulators approve the deal and California objects, the commission could go to the state’s attorney general to file a lawsuit to stop it, said Naruc’s O’Hara.

“An attorney general lawsuit may be the only recourse,” he said.

[flv]http://www.phillipdampier.com/video/CNBC ATT T-Mobile Merger Backlash 7-11.flv[/flv]

CNBC reports some members of Congress are coming out against the merger proposal, claiming it will reduce competition and raise prices.  (2 minutes)