Verizon Communications was supposed to have a “neutral” position regarding the takeover bid by AT&T to absorb T-Mobile, but Lowell McAdam, CEO could sit on his hands no longer, and told the Wall Street Journal “the match had to occur” and cautioned if the government blocks the merger, it needs to cough up more spectrum for wireless companies like his, and fast.

McAdam made those comments earlier today at an investor conference on the afternoon of the first court hearing on the Department of Justice lawsuit to derail the $39 billion deal.

My Breakfast With Julius

McAdam has the luxury of getting his point across directly with Washington’s movers and shakers.  While consumers continue to clamor in overwhelming numbers against the idea of T-Mobile being absorbed into a super-sized AT&T, McAdam enjoyed breakfast with Federal Communications Commission chairman Julius Genachowski.

Consumers don't have the luxury of breakfast with the chairman of the FCC

“I have taken the position that the AT&T merger with T-Mobile was kind of like gravity,” Mr. McAdam said. “It had to occur, because you had a company with a T-Mobile that had the spectrum but didn’t have the capital to build it out. AT&T needed the spectrum, they didn’t have it in order to take care of their customers, and so that match had to occur.”

“So in my discussions with the FCC and folks on the Hill, if we want to stop or if the government wants to stop a merger like that, they need to then step up and say, this is how we are going to get spectrum in the hands of people,” he said.

Mr. McAdam said that can be done through secondary auctions, incentive options or freeing up additional spectrum. He said the wireless industry needs more spectrum, and the FCC will be “very focused on delivering that.”

McAdam didn’t say T-Mobile could have always sold its unwanted spectrum to AT&T instead of entering into a $39 billion dollar merger deal that will further reduce wireless consumers’ choice in carriers.

Unfortunately, consumers bringing delicious breakfast pastries and a point of view about wireless consolidation are unlikely to find themselves sharing a cup of joe with the head of the FCC.  They can’t even be trusted with the FCC Chairman’s direct phone number, which executives at AT&T and Verizon both have.

No Second Cup of Coffee for Jittery Investors

Investors may not want a cup of coffee themselves, considering the jittery reception some have had to news Verizon would forgo a recurring dividend and spend money at wireless spectrum auctions instead.

“When it makes sense, we’ll have a dividend,” he said. “When there’s a better first use for those dollars, we’ll do that with it, and the dividend will either be on a hiatus or less.”

LG Optimus T

Some analysts would have you believe nobody wants to keep doing business with T-Mobile, but when the price is right, it can bring the company’s online ordering system to its knees.

T-Mobile’s prepaid division ran a sale this morning on a refurbished LG Optimus T, an entry-level Android v2.2 smartphone, for just $82.49.  In addition to free ground shipping, the phone also included $30 in airtime credit (as all of their $50+ prepaid phones currently include).

T-Mobile exhausted its supply within hours, but not without some frustration from customers who found completing the order difficult when the website began to fail from all of the traffic.

“This is an amazing deal, especially when combined with some “cashback” programs run by websites like Fatwallet, which knocked another $7.50 off the price,” writes Stop the Cap! reader Jenny Truro.  “T-Mobile’s prepaid service is actually a good deal when you top up once for $100, because all subsequent refills in any amount won’t expire for an entire year.”

Truro doesn’t use a cell phone enough to justify a standard two-year contract plan, and hated dealing with AT&T’s GoPhone prepaid plan because minutes were costly and expired quickly.

“AT&T lets you keep minutes up to a year when you spend $100, but you have to keep renewing at $100 every year if you want to hang on to last year’s minutes,” Truro says. “T-Mobile doesn’t stick you with that, and some of the other providers charge way too much per minute.”

Truro says the LG Optimus T she purchased this morning will be her introduction to smartphones.

“If I find I don’t use it enough to justify paying for prepaid data plans and other features, it was not an expensive experiment.”

The LG Optimus T can also be unlocked by T-Mobile by calling customer service 60 days after activating the phone on their network.  That allows the phone to be used on other providers’ networks with an appropriate SIM card.

Since AT&T announced its intention to merge with T-Mobile, analysts have declared T-Mobile a white elephant — one that postpaid customers are increasingly leaving.  But T-Mobile’s innovative, often-aggressive pricing proves that for the right price, customers will not only stick with the carrier, they’ll be joined by thousands of others willing to sign up.

At least seven states including New York, California, Illinois, Pennsylvania, Washington and Ohio have announced they are joining the Justice Department lawsuit to stop AT&T’s attempted buyout of T-Mobile USA.

The merger has been heavily criticized by consumer groups for its potential to reduce wireless competition and stifle the marketplace with just two dominant carriers — AT&T and Verizon Mobile.  Now several Attorneys General have joined the voices of opposition to the merger.

“This proposed merger would stifle competition in markets that are crucial to New York’s consumers and businesses, while reducing access to low-cost options and the newest broadband-based technologies,” New York Attorney General Eric T. Schneiderman said in a statement.

Washington State Attorney General Rob McKenna said the deal would “result in less competition, fewer choices and higher prices for Washington state consumers.”

“The proposed merger would create highly concentrated markets in Massachusetts and could lead to higher prices and poorer service.” Massachusetts Attorney General Martha Coakley said.

Illinois Attorney General Lisa Madigan said the deal would “substantially lessen competition for mobile wireless telecommunications services in Illinois and across the United States.”

“Blocking this acquisition protects consumers and businesses against fewer choices, higher prices, less innovation, and lower quality service,” Madigan added.

“Our review of the proposed merger between AT&T and T-Mobile has led me to conclude that it would hinder competition and reduce consumer choice,” California Attorney General Kamala D. Harris said. “Enforcement of antitrust law is the responsibility of the Attorney General and is vital to protecting our state’s economic strength and tradition of innovation for the betterment of all Californians.”

Shuler

Although the level of opposition to the transaction continues to grow, AT&T itself claims to remain confident it can push the merger through.

“It is not unusual for state attorneys general to participate in DOJ merger review proceedings or court filings,” AT&T representative Michael Balmoris said.

Several Democratic lawmakers, most of whom receive substantial campaign contributions from AT&T, would seem to underline the company has the support of at least some in Congress.

Rep. Heath Shuler (D-North Carolina), joined 14 Democratic co-signers in a letter sent Thursday to President Barack Obama encouraging him to support the merger deal.

“By settling the proposed merger of AT&T and T-Mobile USA we can put thousands of Americans back to work and promote economic development across the country,” Shuler said. “I urge the President to strongly consider the vast benefits this merger will have on job creation and the economy and quickly resolve any concerns the Administration may have with the proposal.”

Among the co-signers: Rep. John Barrow, Rep. Mike Ross, Rep. Dan Boren, Rep. Dennis Cardoza, Rep. Joe Baca, Rep. Leonard Boswell, Rep. Ben Chandler, Rep. Jim Costa, Rep. Henry Cuellar, Rep. Mike McIntyre, Rep. Mike Michaud, Rep. Collin Peterson, Rep. Loretta Sanchez, and Rep. David Scott.

AT&T currently also has support for their deal from 11 states, many which receive very little service directly from T-Mobile: Alabama, Arkansas, Georgia, Kentucky, Michigan, Mississippi, North Dakota, South Dakota, Utah, West Virginia and Wyoming.

A court hearing is scheduled for Sept. 21 to discuss settlement options.

[flv width=”480″ height=”290″]http://www.phillipdampier.com/video/KFOR Oklahoma City ATT T Mobile Merger 9-19-11.mp4[/flv]

KFOR in Oklahoma City explores the latest developments in the T-Mobile/AT&T merger case.  (2 minutes)

The Chicago Tribune‘s advocacy for the merger of AT&T and T-Mobile leaves the facts far behind, and raises questions about just how much the newspaper understands about telecommunications company mergers.

In this morning’s edition, the newspaper claims efforts by the Justice Department to block the merger will “slow [wireless] progress to a crawl.” That’s a half-baked conclusion, considering AT&T’s own accidentally-public internal documents reveal a willingness to spend $39 billion on a merger while balking at spending one-tenth of that amount to upgrade its own 4G network.  The injury to rural America the Tribune fears most was self-inflicted by AT&T even before the merger was announced.

Access to advanced wireless Internet is the key. A merger of AT&T and T-Mobile would bring an under-served swath of America into the 21st century of high-speed mobile data communication. Much like the rural electrification movement of the 1930s, this deal offers a chance for many Americans to leap ahead technologically.

If Justice gets its way, progress will slow to a crawl. We think the FCC should approve the merger after obtaining appropriate concessions — and Justice should settle its case sooner, not later. Dragging out this proceeding stands to hurt a nation that can ill afford more damage from a government too often hostile to business interests.

Evidently the editorial writers at the Tribune have been drinking AT&T’s Kool-Aid.  There is more to see here than AT&T’s advocacy kit, if one is willing to look beyond lucrative, saturation advertising campaigns and lobbying.

The government got the bright idea of helping wire rural America for electricity when commercial providers refused.

AT&T’s own merger announcement spoke glowingly of the “increased efficiencies” a more concentrated wireless marketplace will deliver, but said very little to investors about T-Mobile’s cellular network being the key to unlock rural wireless.  The reason is simple: T-Mobile doesn’t have a rural wireless network.  In fact, T-Mobile’s long-standing focus on urban markets means considerable duplication of resources in medium and large cities — resources that might help reduce the number of dropped calls in cities like New York, Chicago or San Francisco, but hardly a boon for residents of Ottumwa, Iowa, who barely get a signal today from AT&T, much less T-Mobile.

We agree with the Tribune editors when they say improved advanced wireless Internet is important to rural America. But nothing within AT&T’s massive document dump guarantees rural 4G service, especially after four national companies judged it didn’t make much business sense.  Three national carriers hardly strengthens the case.  In fact, investors will expect AT&T to use precisely the same Return on Investment-formulas that have always ruled rural 4G wireless out of bounds.

The Tribune forgets rural electrification came in spite of private power companies, who viciously opposed government electrification projects (unless they benefited from them).  The reason rural Americans went without electrical service until the late 1930s was the same reason rural Iowa doesn’t have lightning-fast 4G service — it doesn’t make much business sense to provide it.

When President Franklin D. Roosevelt declared electricity an essential utility service every American should be able to access at a fair price, government resources picked up where Wall Street left off — financing electric generation projects and encouraging the development of power cooperatives and municipal utilities. It often took more than 20 years to pay off the costs of the infrastructure — at a price (and wait) unwilling to be covered by giant power companies like Chicago’s Commonwealth Edison at the time.

It’s much the same story for AT&T today.  The enormous telecommunications company was provided an estimate of $4 billion to upgrade its network to 4G service nationwide.  Company executives refused, suggesting the time required to recoup that investment was too far out for their tastes.  But a $39 billion dollar merger with T-Mobile, despite the much higher price tag, delivers immediate benefits they can take to the bank: decreased competition and pricing innovation.  T-Mobile delivers both on its own, and even in fourth place influenced the service plans and pricing at other wireless carriers.  By eliminating that competition, the pressure to reduce prices or enhance service is diminished.  The ability to raise prices, or reduce the number of services, is enhanced.

Astonishingly, the Tribune writers completely ignore the biggest reason why AT&T cannot afford to slow progress to a crawl.  Its name is Verizon Wireless, and AT&T ignores its own network at its peril.  That’s why competition, even from America’s #4 carrier, remains critically important.

While the Chicago Tribune seems comfortable rallying for the cause of one of their advertisers — a multi-billion dollar corporation it sees as a victim of government “anti-business” hostility, we’re more concerned about protecting American wireless consumers from the results of AT&T’s efforts to cut competition (and consumer-friendly services) to a bare minimum.  AT&T’s carrot is the illusory promise of enhanced wireless service in rural communities the company routinely ignores.  The Justice Department, thankfully, prefers the stick — recognizing an anti-competitive, anti-trust feeding frenzy when it sees one, and is correct when it gives it a good whack.

Not satisfied with relying on the U.S. Department of Justice to protect the competitive marketplace for cell phone service, Sprint Nextel today brought suit against AT&T, Inc., AT&T Mobility, Deutsche Telekom and T-Mobile seeking to block the proposed acquisition as a violation of Section 7 of the Clayton Act. The lawsuit was filed in federal court in the District of Columbia as a related case to the Department of Justice’s (DOJ) suit against the proposed acquisition.  It has been assigned to the same judge handling the Justice Department’s own lawsuit — Judge Ellen S. Huvelle.

“Sprint opposes AT&T’s proposed takeover of T-Mobile,” said Susan Z. Haller, vice president-Litigation, Sprint. “With today’s legal action, we are continuing that advocacy on behalf of consumers and competition, and expect to contribute our expertise and resources in proving that the proposed transaction is illegal.”

Sprint’s lawsuit focuses on the competitive and consumer harms which would result from a takeover of T-Mobile by AT&T. The proposed takeover would:

• Harm retail consumers and corporate customers by causing higher prices and less innovation;
• Entrench the duopoly control of AT&T and Verizon, the two “Ma Bell” descendants, of the almost one-quarter of a trillion dollar wireless market. As a result of the transaction, AT&T and Verizon would control more than three-quarters of that market and 90 percent of the profits;
• Harm Sprint and the other independent wireless carriers. If the transaction were to be allowed, a combined AT&T and T-Mobile would have the ability to use its control over backhaul, roaming and spectrum, and its increased market position to exclude competitors, raise their costs, restrict their access to handsets, damage their businesses and ultimately to lessen competition.

Sprint believes that in a marketplace dominated by AT&T and Verizon Wireless, the two largest players would likely collude on pricing and terms of service rather than compete heavily against one-another.  Sprint’s assumptions may already be true, considering both companies largely charge near-identical prices for service.

While Sprint proceeds with its own legal action, squabbling has broken out over whether or not AT&T so carefully crafted the terms and conditions of their $6 billion “breakup fee,” payable to T-Mobile USA if the merger fails, that it almost guarantees AT&T will never have to pay it.

“Under its agreement with Deutsche Telekom, the deal is only valid if the acquisition receives regulatory approval within a certain time frame,” an anonymous source told Reuters. “Also, the agreement could become invalid if regulatory conditions for the sale push the value of T-Mobile USA below a certain level.”

T-Mobile, unsurprisingly, disagrees with that characterization.

A Deutsche Telekom spokesman said Tuesday that AT&T could retreat from the transaction if the concessions necessary to get approval amount to more than $7.8 billion, but added Deutsche Telekom would still be entitled to receive the break-up fee package, which includes cash and wireless spectrum.