AT&T, Verizon may face tighter regulation following FCC report

AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) expressed dismay over an FCC report that said  the U.S. wireless industry is not "effectively competitive," and AT&T worried the report could lay the groundwork for additional industry regulations. Indeed, analysts are already speculating that the nation's two largest wireless carriers could be excluded from upcoming spectrum auctions.

The commission, in its annual report on the state of wireless competition, did not say the industry is uncompetitive, but instead took a neutral stance. FCC Chairman Julius Genachowski said the commission is not trying to "reach an overly simplistic 'yes-or-no' conclusion" about the level of competition in the industry, and applauded the granular approach the report took in analyzing competition.

AT&T, however, took issue with the report. "The FCC's decision is a dramatic break from years of solid precedent," Robert Quinn, AT&T's senior vice president of federal regulatory affairs, said in a statement. "This seems intended to justify more regulation in a market where it is clear beyond doubt that regulation is simply unwarranted."

Verizon, too, was miffed by the report, and said the U.S. wireless market is becoming more competitive every day. "Competition is bringing enormous benefits to consumers, as reflected in the American Customer Satisfaction Index's new report showing wireless customer satisfaction is at an all-time high," Kathleen Grillo, Verizon's senior vice president of federal regulatory affairs, said in a statement. "The facts and the record establish conclusively that the wireless marketplace is 'effectively competitive,' as the FCC has found in the previous six wireless competition reports."

The conclusion of the report--or rather, the lack thereof--has led some analysts to speculate that the FCC might try and bar Verizon and AT&T from participating in upcoming spectrum auctions, including the 700 MHz D-Block re-auction, which could take place early next year. "You need to have a lot of spectrum to compete," Rebecca Arbogast, an analyst at Stifel Nicolaus, told the Financial Times. "I believe the FCC is not looking at where things are today, but looking at how things might look a few years from now."

Despite their objections, Verizon and AT&T have been doing well financially in the wireless market. According to the FCC report, in the second quarter of 2009 Verizon had an EBITDA margin of 46.3 percent and AT&T had a margin of 38.3 percent. The top seven wireless carriers by subscribers had margins ranging from around 20 percent to above 40 percent.

For more:
- see this FT article
- see this Bloomberg article
- see this GigaOM post

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