AT&T, Verizon probe heralds new era of greater telecom scrutiny

Bloomberg

The Department of Justice opened another front in its scrutiny of the US telecom industry, signaling it’s set on maintaining a deeply competitive environment in a market where four major carriers are jostling for new subscribers. Antitrust officials are investigating whether AT&T Inc. and Verizon Communications Inc. colluded to make it tougher for consumers to change wireless carriers, people familiar with the matter said last week. Apple Inc., a pioneer in the so-called eSIM technology that makes switching easier, was among those to have complained about the practices, the people said.
The fresh probe suggests eliminating anti-competitive practices has moved up the agenda under the Donald Trump presidency. The government already is suing to block AT&T’s $85 billion acquisition of Time Warner Inc., arguing the tie-up will hand AT&T undo bargaining leverage in programming negotiations and ultimately raise prices for subscribers.
“The very fact that the DOJ is looking into this sends a very strong signal to the industry: don’t even try it,” Harold Feld, senior vice president at the policy group Public Knowledge, said in an interview. Once these industry standards are set it’s “very hard to pull back” and underscores that the government will not “tolerate any kind of anti-competitive collusion.”
Verizon spokesman Rich Young called it simply a “difference of opinion” with phonemakers on a standard for the switching technology, and AT&T said it’s continuing to work with the mobile carriers’ trade group. The Obama administration had looked at the topic in 2016 and decided to take no action.
“Any good government inquiry is looked at and ultimately decided on merit,” Young said. “That was the case in 2016 and we are very confident the government will reach the same conclusion this time.”
The heightened pressure could also imperil efforts by Sprint Corp. and T-Mobile US Inc. to merge, according to JPMorgan Chase & Co. analysts, who noted the general deterioration in tone against mergers in the past year. The companies were said to have revived talks this month about a deal, after an attempt to combine fell apart in November.
“A DOJ view that carriers are colluding could mean that a potential Sprint + T-Mobile merger would face higher scrutiny, making us somewhat less optimistic about that deal,” the analysts led by Philip Cusick wrote in a report. Still, previous probes against fixed and wireless providers haven’t had substantial impact and “we would be surprised to see a painful outcome for carriers in this one,” they wrote in the note.
News of the probe rattled the companies’ shares. Verizon closed down 1.1 percent to $47.90 after losing as much as 2.5 percent, while AT&T fell 1.9 percent but recovered to close at $34.67, down 0.4 percent.
Regulators have pressured the phone companies to make it easier for consumers to change carriers. The big four — Verizon, AT&T, T-Mobile US and Sprint — agreed in 2013 to let consumers use smartphones on other networks after contracts expire. The following year President Barack Obama signed legislation giving consumers the freedom to switch between wireless carriers without having to purchase a new phone.
The technology in eSIM — short for electronic subscriber identity module — allows users to switch carriers via a settings menu directly from their phone or tablet. This makes it easy for consumers to swap without physically popping out the SIM card chip from a mobile device or contacting their wireless carrier.