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Summary:

AT&T’s strategy for pushing through its $39-billion purchase of T-Mobile, thus consolidating further the majority of the mobile subscribers, 4G-capable spectrum and revenue in the U.S. is fantastic. Let’s take a look at the promises, the changes in strategy and the continuing issues.

at&t-mobile-merger

Say what you will about the transaction itself, but AT&T’s strategy for pushing through its $39 billion purchase of T-Mobile, thus consolidating further the majority of the subscribers, 4G-capable spectrum and revenue in the U.S. is fantastic. For the areas where the media and naysayers have attacked it most, it has seemingly addressed the points: for example, making a distinction in its spectrum FUD and promising to cover even more people with wireless. But it has also sweetened the reasons consumers should clamor for the deal, beginning with the idea that within a mere nine months after the deal goes through, AT&T service in congested areas will improve. Let’s take a look at the promises, the changes in strategy and the continuing issues, shall we?

René Obermann, Chairman and CEO, Deutsche Telekom and Randall Stephenson, Chairman and CEO, ATT

The Seduction

These documents, filed Thursday with the FCC, are AT&T’s chance to make its case before regulators that this deal won’t harm the public and may indeed benefit it. To that end, let’s look at why AT&T thinks this is a great deal for the U.S. consumer, despite that it will reduce the number of players in the market from four to three. Most of its arguments revolve around better service and nationwide 4G coverage.

AT&T says it expects to integrate a number of T-Mobile towers into its network and said integration “will benefit customers in as little as nine months.” The result will effectively double the amount of network traffic that can be carried using existing spectrum in the areas served by those cell sites. It also pointed out more capacity means fewer dropped calls. Yay. Those are really frustrating.

The Waffling

You know how AT&T said it would cover 95 percent of the population with LTE and thus, help advance the president’s plan for mobile broadband coverage? Well, several folks called out AT&T on this claim pointing out President Obama called for 98-percent coverage and Verizon was already going to meet that goal, so this wasn’t some kind of heroic stretch. Well, AT&T apparently did a bit more work on the numbers and now says it can cover 97.5 percent of the population if it swallows T-Mo, which is pretty close to the actual goal and what Verizon is planning. Way to underestimate, then barely deliver, AT&T.

The other big area where AT&T has somewhat shifted its rhetoric is in the whole spectrum shortage arena. Since so many people apparently realized AT&T buying T-Mobile doesn’t actually add any new spectrum to the overall market, it has shifted its pitch slightly from quoting FCC Chairman Julius Genachowski on the “looming spectrum crisis” to saying this deal helps AT&T provide “the functional equivalent of new spectrum” because it now has more spectrum. Which is true. And which will benefit AT&T consumers, while consolidating more of this scarce resource into a company that didn’t build out its backhaul for several quarters after it realized the iPhone was slamming its network. It’s like giving Hummer drivers cheaper gasoline when they complain it costs too much to drive to work.

The Still-Unanswered Questions

So while AT&T has sweetened the pot a bit with wider 4G coverage and assures regulators that the wireless world is competitive, there are several unanswered questions regulators must ask and consider. First, what speeds will AT&T’s 4GLTE offer 97.5 percent of the country? T-Mo’s version of 4G is actually HSPA+ (albeit with speeds that can hit theoretical peaks of as high as 42 Mbps) ,and while we don’t know what AT&T’s LTE plans will deliver, it doesn’t seem to feel the same urgency T-Mobile and Verizon do to get there. Witness that AT&T’s LTE roll out will begin in the middle of this year, six months after Verizon covered a third of the population and T-Mobile has already upgraded its network twice.

AT&T correctly notes that the FCC found last year that approximately three-quarters of Americans live in localities that offer at least five facilities-based wireless providers, but this neglects to explain how rural or local operators can truly compete in a mobile market that must cover the entire nation. For example, because I travel often, the much-cheaper Metro PCS or Leap Wireless plans aren’t for me because they don’t roam when it comes to data.

Additionally, AT&T will be buying up one of the more innovative mobile operators when it comes to pricing mobile services. There are also questions as to how much high-quality spectrum will be now locked away with Verizon and AT&T, as well as if those players are truly using it efficiently. Technologies, such as femotcells, Wi-Fi offload, additional base stations, and different network architectures can all boost capacity in the limited spectrum operators already hold. So as AT&T tries to sell this merger, we really need the regulators to ask the hard questions about nationwide competition, what type of service ATT will offer, the pricing, and how well AT&T uses the spectrum it already has.

  1. Im all for free Market but I believe there are certain industries that require so much capitol infrastructure (Telco, Cable, Sat TV and Radio..etc) that it is not a viable business with many players. In the current structure of Cell phone technology in the united states I don’t see the option but to only have a few players if each company must fund their whole infrastructure.

    Im not 100% sure how it works (who invests in infrastructure?) in the rest of the world but it does help when a country is based on a single technology (GSM) which allows the carriers to focus on the consumer and not have to worry so much about HUGE capital expenses.

    When you say “Additionally, AT&T will be buying up one of the more innovative mobile operators when it comes to pricing mobile services.” Was T-Mobile successful in generating enough revenue with their creating pricing to be sustainable? I don’t know the actual numbers but seems like Verizon and AT&T may be doing better as a business.

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  2. Nice post. You hit a lot of the key concerns in this proposed merger. Had to laugh at the Hummer & gasoline comment, but it feels pretty spot on. I’m not sure how rewarding a company that has done such a poor job of executing with its existing resources does the public any favors.

    Then again, the FCC seems to be asleep at the wheel or willfully ignorant these days, so I’m not holding my breath that they’ll protect the public from further incompetence.

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  3. Stacey says: “…consolidating more of this scarce resource into a company that didn’t build out its backhaul for several quarters after it realized the iPhone was slamming its network.”

    Fact or speculation?

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    1. Fact, but I did add a link to an article as a reference. It’s this one:

      http://gigaom.com/2009/05/27/att-moves-up-its-lte-rollout-admits-to-network-issues/

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      1. I didn’t see much about backhaul in that article, just the mention of “thousands of new cell site backhaul connections to support the higher mobile broadband speeds enabled by HSPA 7.2 and LTE” which doesn’t imply a failure. The general intuition is that TM has spent more on backhaul than anybody else, but that’s supposed to be a consequence of being unable to spend on spectrum. If TM is backhaul-rich and ATT is backhaul-poor, that seems like an argument in favor of the merger.

        BTW, it’s interesting that nobody is commenting in the Level 3/Global Crossing merger, which has very serious effects on the backbone market, creating a combined entity with 55% of the backbone market, per Renesys:

        http://www.renesys.com/blog/2011/04/level-crossing.shtml

        Of course, it’s tough to oppose it since both companies are so financially weak that Ch. 11 may be looming.

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  4. fat chance.

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    1. Way to underestimate, then barely deliver, AT&T.

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  5. This still gives them a clear monopoly over national viable GSM providers. Verizon is headed there as well since Sprint doesn’t have a lot of gas left in it’s tank. Which means this is going to become very similar to cable. And if Satellite hadn’t come along, our prices would have been through the roof. Can’t imagine what this is going to do to our data plans once VZN and ATT decide to work together on pricing.

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