**STATEMENT OF FCC COMMISSIONER**

**MICHAEL J. COPPS**

**Approving in part, dissenting in part**

RE: Applications of AT&T Wireless Services, Inc. and Cingular Wireless
Corporation For Consent to Transfer of Control of Licenses and
Authorizations (Memorandum Opinion & Order).

Among the FCC's many responsibilities under the public interest merger
review standard, two stand out for purposes of analyzing this particular
transaction. First, we must examine whether the combination results in a
level of competition adequate to protect consumers as of this moment in
time and as illuminated by our retrospective data. In this Order the FCC
confines that analysis to an examination of intramodal wireless
competition. Second, we must examine whether the merger will make
changes to the communications marketplace that endanger Congress's
public interest goals more generally. For purposes of this merger, that
analysis largely concerns damage to intermodal competition and the
relationship between the merged entity and its wireline parents. I
support the Order as it relates to intramodal competition within the
wireless market. With the divestitures achieved in this order, I believe
that an acceptable level of competition will continue to characterize
the wireless market. I must dissent to those parts of the Order relating
to the intermodal aspects of the merger, however, because of the
increased potential for discrimination by the merged entities' wireline
parent companies and also because I find the lack of rigorous
competitive analysis troubling.

**[Intramodal Competition]{.underline}**

I have closely examined the data that the FCC staff has presented to me.
My conclusion is that after the merger, an acceptable level of
intramodal competition will remain in place in the wireless market in
most geographic areas. While U.S. wireless telecommunications are
characterized by effective competition in most markets, the market
shares of various carriers are not equally distributed. In many markets
the merged entity will have a nearly 50 percent market share. In some
smaller markets the entity's market share will be significantly higher.
In most of these markets, however, four or more able competitors will
continue to compete post-merger. Even where the market shares of these
competitors are substantially below that of the merged entity, under
current market conditions they retain the ability to constrain excessive
pricing. These competitors stand ready to snatch away Cingular/AWE
customers who would become dissatisfied if the merged entity were to
raise prices too high. Today, in fact, even in markets where the
pre-merger Cingular has a very high market share, it has been unable to
raise prices, presumably due to this competition.

In some markets, however, the proposed merger would have created
unacceptable competitive harms. The Order therefore imposes competitive
remedies where markets would become dangerously concentrated
post-merger. The Order concludes that even where a market contains four
or more able competitors to the merged entity, if the merged entity's
market share is too high, competitors would not be able to discipline
behavior. In one market, for example, the merged entity's
post-transaction market share would be close to 60 percent. Other
substantial national carriers compete in this market; one with 18
percent, a second with 17 percent, and a third with 4 percent. In this
market, despite the presence of competing carriers, the order concludes
that competitors would not be able to discipline the merged entity's
behavior.[^1]

In other cases, even though another substantial carrier is competing,
the Order concludes that "the merger would lead to an effective duopoly
... \[and that\] \[w\]e have previously been highly skeptical of mergers
that would lead to a duopoly, and the courts have found that mergers to
duopoly are generally unacceptable." The Order also finds that there are
markets where the merged entity would control such a large amount of
spectrum that competitors would not have the spectral resources to
discipline its behavior. In many of these markets, the Order requires a
spectrum divestiture. In other markets it imposes a condition that the
merged entity cannot participate in the upcoming Auction 58. This latter
enhancement of the Order will prevent the merged entity from denying new
spectrum resources to potential competitors.

In the interest of improving and quickening the review of future
mergers, I must note that the data that we relied upon in making these
decisions were not what they could have been. The item relies almost
exclusively on the NRUF database of telephone numbers to determine
market shares. I am not convinced that this database alone is adequate
for this important determination. Recognizing this possibility, the
Commission requested data from wireless firms about actual customers, so
it would not have to rely so heavily on potentially faulty NRUF
database. But today the Commission largely ignores the valuable data
that we collected from carriers. Limited analysis of this data
demonstrated that it might produce significantly different results than
the NRUF database. Unfortunately, these important data were not made
available to Commissioners. Going forward, now that we know of the
potential for inconsistency in the data, we must insist upon the
provision of these data and the opportunity to compare them to the NRUF
database before rendering a decision. This option was unavailable to me
in this case.

I also want to note that the Order includes an analysis of Cingular's
efforts to provide communications technologies to the disabilities
community. I have been very favorably impressed with Cingular's efforts
and the expansion of these efforts through the merger contributes
significantly in Cingular's favor in the public interest analysis. I
look forward to this work continuing in the merged entity. It is vitally
important to the disability community and, indeed, to the nation.

Overall, I believe that the merger will not reduce intramodal
competition in most markets to dangerous levels. It will, however,
reduce this competition to some extent. The number of national carriers
will shrink to five. A major competitor will disappear in hundreds of
markets. The FCC has always been proud of the level of competition in
the wireless market and of the fact that is has continuously grown. Here
we create the potential for wireless competition to shrink, so we must
now be far more vigilant to protect consumers. We are drawing down on
the storehouse of intramodal competition that industry investment and
wise FCC policy throughout the 1990's created. With less competition
left in the storehouse by today's order, we need to be constantly
monitoring, analyzing and preparing ourselves to deal with any
competitive threats arising in the aftermath of this transaction.

**[Intermodal Competition]{.underline}**

Turning now to our second responsibility, the Commission must examine
whether the merger will make changes to the communications marketplace
that endanger public interest goals more generally. In today's Order,
this analysis largely concerns damage to intermodal competition and the
relationship between the merged entity and its wireline parents.

This proceeding was harmed by the absence of rigorous analysis of the
implications of this merger for intermodal competition. Again and again
over the past few years the FCC has undermined competition to wireline
incumbents. As a result, competitors have become far less effective.
AT&T, the nation's largest long distance competitor to the Bells, has
announced huge layoffs. Indeed, the company has said that it will,
amazingly, exit the residential long distance market. Nonetheless, we
are told not to be alarmed or to fear that phone rates will
rise---because intermodal competition will save the day. In other words,
even if there is inadequate wireline-to-wireline competition to the
incumbent carriers, other competitors using non-wireline technologies
will fight the Bell operating companies for customers, thereby keeping
prices low.

But who will these intermodal competitors be? Someday broadband over
powerline may offer real competition. But today there are less than
10,000 BPL customers in the whole country. Maybe VoIP? I have high hopes
here. But we need always to remember that as end-users of
facilities-based carriers, VoIP competitors are beholden to the Bell and
cable companies. We can cross our fingers and hope that growing duopoly
does not discriminate so as to snuff out growing competition---but
absent any commitment on the part of this Commission to insist on
non-discrimination rules, I remain concerned for independent VoIP
providers. Additionally, all customers desiring VoIP for their voice
service must subscribe to expensive broadband services. As the U.S.
continues its free-fall broadband descent---we are now Number13 in the
world in penetration---and with broadband prices still out of the reach
of many Americans, there is much to be done if VoIP is to fulfill its
potential.

So that leaves wireless. My colleagues often point to wireless as a
strong intermodal competitor. After this merger, however, the chance
that wireless will compete effectively with wireline incumbents is
diminished. AT&T Wireless was the largest non-Bell-affiliated wireless
company in the country. Cingular and Verizon, both affiliates of BOCs,
will now be the number one and two wireless carriers. Together the
Bell-affiliated companies will now be more than 5 times larger than the
next largest competitor.[^2] Once Cingular acquires AT&T Wireless, more
than half of all wireless customers will be controlled by the Bell
companies for the first time ever. In many markets BOC control of
wireless customers will be even higher.

Can we expect that Bell owned wireless carriers will compete
tooth-and-nail against their wireline parents? I don't think so. Even
the Order agrees: "The acquisition will also affect intermodal
competition through the likelihood that Cingular will not pursue AT&T
Wireless's extensive plans for wireline replacement offerings." It also
notes that rather than developing products designed to compete with
wireline services, "Cingular has developed and marketed many of its
wireless products and services to complement -- and specifically not to
replace -- residential wireline voice services. Cingular developed this
strategy largely because SBC and BellSouth play a significant role in
Cingular's business decisions." The Order continues, "it appears that
Cingular is unlikely to initiate its own wireless substitute offering
post-acquisition in the SBC and BellSouth regions." In other words,
Bell-controlled wireless carriers will likely not be in-region
intermodal competitors. Because Cingular and Verizon Wireless are the
largest wireless carriers in their respective parents' wireline regions,
this means that many Americans can expect intermodal competition by
wireless carriers to suffer from this merger.

Despite these concerns, the Order devotes a mere 13 paragraphs of a more
than 100 page order to the intermodal competition that stands at the
center of so much of this Commission's competition philosophy. In the
end the Order dismisses the problem posed by the merger by asserting
that wireless was never really an intermodal competitor after all
because "most wireline customers do not now consider wireless service to
be a close substitute in the antitrust sense for their primary line
obtained from a wireline carrier," and because "there remain qualitative
differences between wireless and wireline services." I guess this means
we won't be hearing so much rhetoric in the future about the power of
wireless as an intermodal competitor.

I also believe that the FCC should have followed the precedent of past
mergers by including a non-discrimination condition. Specifically, the
Commission should have prohibited SBC and BellSouth, in regions where
they are the wireline incumbent, from discriminating against Cingular's
wireless competitors. Today's Order allows Cingular to combine with AT&T
Wireless in many markets where the merged entity will have a very large
market share compared to its nearest wireless competitor. In theory,
such a market still will be characterized by adequate competition. This
is because if the merged entity raises prices above a certain level, its
customers will be able to leave and sign up with a competitor. In order
for competitors to be able to discipline the merged entity's behavior in
this way, however, competitors must have the ability to absorb customers
who want to leave because of the higher prices.

In order for wireless competitors to ramp up to compete with the merged
entity in such a situation, competitors will need to purchase inputs
from a wireline carrier in the market at issue, unless they have excess
capacity currently laying fallow. Even if they have excess capacity,
they must rely on a wireline carrier to maintain their current service
without raising prices. In particular, if special access or
interconnection is offered to an independent wireless carrier at higher
rates or with less favorable terms or conditions compared with a
Bell-affiliated wireless carrier, the independent carrier will find it
extremely difficult to provide a competitive check on the affiliated
carrier. If the incumbent wireline carrier controls the largest wireless
carrier in a region, it has an incentive to provide superior special
access and interconnection rates, terms, and conditions to its
affiliate. That is because by crippling potential competitors it will
enhance its affiliate's profits and thereby enhance its own profits. We
could have made it clear that such behavior is unacceptable by including
a non-discrimination condition in this merger. I welcome my colleagues'
assertion that Section 202 already prohibits such behavior. The test
will come when we are asked to use Section 202 to combat discrimination.
The history here is not encouraging and I would have much preferred to
be explicit so we would have a more powerful tool if and when we are
presented with such a challenge.

To conclude, despite inadequate analysis and too dismissive an attitude
toward the danger to intermodal competition posed by this merger, I
welcome the Commission's strong warning about the future. "We caution,
however, that we may take a different view with regard to any future
transactions that would diminish significantly the ability of
independent wireless carriers to offer intermodal alternatives to
wireline service. At this time, we recognize that there are benefits to
consumers from both wireline replacement offerings and complement
offerings. We intend to monitor carefully further developments in this
marketplace that may affect intermodal competition, and to consider
carefully future transactions that may impede our efforts in that
regard. The Commission has worked hard to create the regulatory
conditions for robust intermodal competition, and it remains strongly
committed to achieving that important policy goal." I agree.

[^1]: I have not identified the market in this example in order not to
    reveal proprietary information. Those with access to the unredacted
    version of the Order can reference the "Individual Market Analysis"
    to identify this market.

[^2]: Securities and Exchange Commission, "Carrier Subscribers and
    Capital Expenditures," Second Quarter 2004.