Obama caught in the middle of phone company mergers

AT&T’s $39 billion bid for T-Mobile is a deal that consumer advocates hate but labor unions love. And that puts the Obama administration squarely between two powerful constituencies that typically support Democratic presidential candidates.

A vast array of public interest groups and a growing number of state officials fear that the deal will lead to too much concentration in the wireless industry and higher cellphone bills for Americans.

But the Communications Workers of America union says the transaction will create jobs - and give it more members. If the administration blocked the merger, it would risk upsetting a key union at a time when the labor movement is facing an erosion of its influence and is looking to Democrats to help reinforce its flagging ranks.

“The administration is in a tricky spot,” said Paul Gallant, a research analyst at investment firm MF Global. “Labor is often an under-appreciated ally of the major phone companies, and they are undoubtably playing an important role in this merger.”

The CWA has been among the most vocal supporters of the merger. As the communications industry’s biggest union, with 700,000 members, it has lobbied regulators at the Federal Communications Commission to approve the deal. CWA chief Larry Cohen has testified at congressional hearings that the joined resources of AT&T and T-Mobile could bring high-speed Internet connections to rural areas more quickly and create more jobs. Last week, CWA members met with Justice Department officials to reiterate that message.

The merger would put eight out of 10 cellphone contracts in the hands of AT&T and its biggest competitor, Verizon Wireless. But the CWA says the new AT&T would generate about 100,000 jobs through a promised $8 billion in investment to expand its high-speed wireless network - a powerful argument at a time of soaring unemployment.

Several state governors, as well as Web giants including Facebook and Microsoft, have expressed support for the deal. An A&T spokesman said the company has little doubt of the outcome.

“The FCC and DOJ processes are fact-based, and we are confident that after a thorough review they will recognize the merger’s significant benefits,” said AT&T spokesman Michael Balmoris.

But some antitrust experts are dubious about the benefits.

Critics say combining the two wireless carriers will probably lead to layoffs at T-Mobile, which has a workforce of 38,000. AT&T will try to eliminate overlapping engineering, sales and customer service positions, experts predict.

“I’ve never seen a merger that has produced new jobs,” said Albert Foer, president of the American Antitrust Institute, a research and advocacy group.

Consumers are also concerned about the deal. They have complained to state public utilities commissions that their bills will be higher with fewer carriers to choose from. They’ve filed thousands of comments to the FCC saying that fewer carriers means fewer choices for handsets.

The merger would reduce the number of national carriers from four to three - or even fewer, because next-biggest Sprint Nextel says it probably wouldn’t survive as a stand-alone firm with such huge competitors.

Such concerns have sparked investigations by attorneys general in nine states, including Arizona, Florida, Hawaii, Illinois, Minnesota, New York and Texas. Sprint revealed last week that it had been subpoenaed by those states and the Justice Department to explain its concerns with the transaction.

And the deal comes amid growing criticism by left-leaning public interest groups that the Obama administration has been too lax on corporate mergers.

The Justice Department’s outgoing antitrust chief, Christine Varney, who announced her plans to leave the agency last week, approved every major transaction that came before her, including Comcast’s joint venture with NBC Universal and United Airlines’ purchase of Continental. The White House doesn’t technically review corporate mergers, but Obama appointed the head of Justice’s antitrust division and the chairman of the FCC.

Spokespeople for the Justice Department and the FCC said their agencies would not comment on an active review.