AT&T, Verizon Probe Heralds New Era of Greater Telecom Scrutiny

The Department of Justice opened another front in its scrutiny of the U.S. 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 eSIM technology that makes switching easier, was among those to have complained about the practices, the people said.

The fresh probe suggests that eliminating anticompetitive 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 anticompetitive collusion.”

‘Difference of Opinion’

Verizon spokesman Rich Young on April 20 called it simply a “difference of opinion” with phone manufacturers 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 April 22. “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 published April 20.

Stocks Recover

News of the probe rattled the companies’ shares. Verizon closed down 1.1 percent April 20 after losing as much as 2.5 percent, while AT&T fell 1.9 percent but recovered to close down 0.4 percent.

The shares continued to recover April 23.

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. President Barack Obama signed legislation the following year giving consumers the freedom to switch between wireless carriers without having to purchase a new phone.

Easy Switch

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.

Mobile industry standards group GSMA said it had put on hold its work developing the latest global standard for eSIM technology, pending completion of the investigation, according to a website statement April 21.

“The GSMA is cooperating fully with the Department of Justice in this matter,” the organization said in the statement. The group is working with leading mobile operators, device, and SIM makers on the standard that will include the option for eSIM to be locked, provided consumers consent under the specific agreements with their mobile operator.

Ferras Vinh, the policy counsel for the Center for Democracy and Technology, said the watchdog group believes restricting portability conflicts with U.S. and Canadian law and copyright policies. He said his group has reached out to GSMA but had not gotten a response.

“Any step we can take to protect the consumer is a positive,” Vinh said.

Although carriers may not like eSIM technology because it allows consumers to switch more easily, “inserting a new SIM card is easy and often done by consumers or retail employees,” the JPMorgan analysts wrote. As such, they’re skeptical the probe of AT&T and Verizon will throw up much evidence of anticompetitive behavior.

“It seems hard to prove that AT&T and Verizon may have caused substantial consumer harm, much less that they colluded to do it,” the analysts wrote.

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To contact the reporters on this story: Sally Bakewell in New York at sbakewell1@bloomberg.net; Michael McDonald in Boston at mmcdonald10@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net; Crayton Harrison at tharrison5@bloomberg.net; Kevin Miller