Testimony Preview: AT&T’s Stephenson, Deutsche Telekom’s Obermann

RANDALL STEPHENSON, AT&T CEO:

Stephenson testified before the Senate Judiciary Committee earlier this month, and will repeat many of the same points he made at that hearing. E-mail sjerome@digital-staging.thehill.com if you’d like a PDF of his testimony. Some excerpts from his testimony below. 

DEAL IS ‘ABOUT CONSUMERS’: “This transaction is about consumers. It’s about keeping up with consumer demand. It’s about having the capacity to drive innovation and competitive prices for consumers. And most important, it’s about giving consumers what they expect — fewer dropped calls, faster speeds and access to state-of-the-art mobile broadband Internet service — whether they live in a large city, a small town, or out in rural areas.”

‘Increased competition among many competitors’: The testimony continues, “Some have suggested that the extraordinary consumer and economic benefits would come at the cost of reduced competition and increased prices. That is simply not true. All T-Mobile customers will have the choice of retaining their existing rate plans or switching to an AT&T rate plan, and they will thus have more choices than before, including a state-of-the-art LTE service that T-Mobile had no clear path to offer on a standalone basis.” He argues that the deal “could not possibly derail the powerful forces of competition in one of the nation’s most competitive industries.”

‘RIPPLE EFFECTS’ ON INNOVATION: “Instead of the investigable slowing of innovation that would take place in the absence of a solution to impending spectrum exhaust, the transaction will produce a series of positive ripple effects throughout the economy as AT&T, its partners, users of its networks, and its competitors are all driven to innovate more aggressively and creatively.”

RENÉ OBERMANN, DEUTSCHE TELEKOM CEO: 

Obermann, in his first time testifying before Congress on the merger, will cite competition from online voice services such as Skype and Google Voice. “T-Mobile has been caught in the middle of this dynamic marketplace and has had an increasingly difficult time competing,” he notes.

He will make it clear that DT is thinking more about Europe than the U.S., potentially a selling point for lawmakers who would like to see the No. 4 U.S. cell phone company move into American hands. Obermann says DT would have trouble investing in T-Mobile even if spectrum were available for purchase due to the company’s needs in Europe. 

“Even if [spectrum were] available, such an acquisition would have forced Deutsche Telekom to reallocate funds from our core European operations into T-Mobile USA — which would have been very difficult for us given our overall group debt situation and our capital investment needs in Europe.”

Obermann will reiterate that T-Mobile has no clear path to LTE deployment without the merger. 

FULL TESTIMONY:

“Since Deutsche Telekom’s acquisition of VoiceStream almost exactly 10 years ago today, 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 facilities-based competitors, but also smaller “no contract” value players, and others such as MVNOs (Mobile Virtual Network Operators), regional wireless carriers, and so called “over-the-top providers” that include increasing number of mobile voice- over-IP solutions, such as Google Voice and 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 steadily 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. While other competitors are moving quickly to build out and develop their LTE networks, T-Mobile lacks a clear path to LTE deployment. To meet the exponential growth in demand for bandwidth, T-Mobile will need to move to LTE to remain competitive but the company simply does not have access to the spectrum needed to deploy LTE effectively. 

“T- Mobile has already dedicated its existing spectrum resources to its less spectrally efficient GSM and HSPA+ 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, 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 capital investment in both spectrum and 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 have forced Deutsche Telekom to reallocate funds from our core European operations into T-Mobile USA – which would have been very difficult for us given our overall group debt situation and our capital investment needs in Europe.

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

“To highlight just a few of these benefits:

“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.

“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.

“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% of Americans. T-Mobile, on its own, simply did not have the spectrum to roll out its own competitive nationwide LTE network.

“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 market. 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 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 wireless competition generally. Thank you for your time. I welcome any questions you have.”