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Summary:

AT&T, on Thursday somehow managed to file a document relating to its T-Mobile acquisition that wasn’t redacted, which noted that it would have to spend $3.8 billion to cover rural areas with its planned LTE network.

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AT&T on Thursday somehow managed to file a document relating to its T-Mobile acquisition that wasn’t redacted, which noted that it would have to spend $3.8 billion to cover rural areas with its planned LTE network. According to Wireless Week, which cites the letter, the filing indicates that AT&T planned to cover 80 percent of the country with LTE service, but that the additional 55 million Americans it would cover to reach the 97 percent mark carried that $3.8 billion price tag. From Wireless Week quoting the letter:

“AT&T senior management concluded that, unless AT&T could find a way to expand its LTE footprint on a significantly more cost-effective basis, an LTE deployment to 80 percent of the U.S. population was the most that could be justified,” AT&T counsel Richard Rosen stated in the letter.

The company said its merger with T-Mobile would spread the cost of the LTE expansion over a larger revenue base, allowing it to “better absorb the increased capital investment and lower returns associated with deploying LTE to over 97 percent of the U.S. population.”

Spending $3.8 billion to cover 55 million people is a fairly high price tag and may not be sound economics for the operator. However, AT&T is telling politicians that this T-Mo deal should happen because it helps bring LTE service to 55 million Americans that wouldn’t otherwise get it. Now we can see the economic thinking behind that, but AT&T is also willing to spend $35.2 billion more buying an entire wireless company. The question is why spend a total of $39 billion on T-Mobile and toss in the additional $3.8 billion for covering almost all of the U.S.?

AT&T says it’s the spectrum, and it does benefit from the AWS spectrum T-Mobile has for deploying its LTE network, but spectrum is not the only answer as Sprint has made the case that AT&T could take it’s existing spectrum and work things out. There’s also the idea that a stronger AT&T and Verizon would lead to a weak or incapacitated Sprint, which then effectively cuts down on competition by killing two companies with one deal. So why has AT&T decided it wants to be fiscally prudent about deploying LTE but then turning around to spend ten times that to take out T-Mobile?

In other AT&T news, we covered a possible setback earlier this week, but the Wall Street Journal today is reporting that the nation’s No. 2 carrier has hired Merrill Lynch to divest assets.

  1. So is ATT saying they have no spectrum in those rural areas that cover the 55 million people? And that the only way to get it is to buy T-Mo? I find that hard to believe, for if the spectrum is not available, doesn’t that mean somebody has it, and is likely using it? Your premise is more likely correct, that they would weaken Sprint and eliminate T-Mo to make it a duopoly.

    I also don’t see what’s so expensive about $3.8B to cover 55 million people. That works out to be $70 per person, which if only 10% of them sign up for ATT LTE, means they spend $700 per new LTE subscriber. They will get that investment back in less than two years, after which their margins on their $70 monthly plans will be substantially higher. Of course, not as high as they would be if they killed off two (lower cost) competitors.

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    1. Paulita Abou-Aly Tuesday, August 16, 2011

      You are absolutely, 100% correct. You make your point very well. AT&T has a long term strategy and the FCC has played right into it so far. Unfortunately the FCC has let AT&T make the quantum leap into tiered data usage and this will eventually drive all cellular markets to do likewise. Now see what has happened, FCC gave AT&T an inch and they want a mile. AT&T started out a service provider and has killed any corporation after merging with them contributing to loss of jobs for example Western Electric the largest entity at the time, a well established electronics, transformer and switching manufacturer. When elephants fight, the grass suffers. We are sick and tired of this! The FCC should not be just a rubber stamp organization. AT&T is making plenty of money from their customers.

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  2. The truth of the matter is that T-Mobile is dying a slow death. If it’s not AT&T, it will be someone else that buys them out, and probably very soon.

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    1. Paulita Abou-Aly Tuesday, August 16, 2011

      Are you an AT&T employee? There are other facts to consider. T-Mobile may need help but AT&T lending a hand is like giving a hammer to someone who is drowning. Please read other posts.

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  3. So, it will cost AT&T more money to increase their footprint. That sounds perfectly reasonable to me. If the merger doesn’t go through, and they can’t expand, how does that help competition?

    If people could see past their personal AT&T rage and do some original thinking, they might realize that a duopoly is better than a monopoly for competition. There is just no way we’re going to have more than one or two carriers that can provide coast-to-coast service on the scale that evolving mobile is going to require. T-Mobile is done. DT has, rightly, given up on them. If AT&T doesn’t get T-Mobile, that means Verizon will never get Sprint. Verizon is ahead on LTE and they will become the monopoly while everyone else fades. No, we need AT&T and Verizon slugging it out between each other. Duopoly is the way big business works.

    Visa/Mastercard
    Pepsi/Coke
    FedEx/UPS
    Airbus/Boeing
    Home Depot/Lowes
    Intel/AMD
    Microsoft/Apple
    Dish Network/DirecTV

    See where I’m going? And wireless is not a business where many vendors can occupy the same space–literally. Analysts are supposed to see that and not cling to the past, regardless of how popular it is to boo and hiss at the big guys.

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    1. Guess you’re forgetting about

      Discover/American Express
      DHL/USPS
      ACE Hardware/Do-It Center
      Dell/HP/Lenovo
      Cable TV operators.

      While the companies you mention are certainly significant players they don’t represent a duopoly. If AT&T & Verizon become the two largest players it’s only a matter of time before the regional operators decide to sell out because they won’t be able to compete with the services they provide.

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    2. Paulita Abou-Aly Tuesday, August 16, 2011

      I will belabor my point again. AT&T started out a service provider and has killed any corporation after merging with them contributing to loss of jobs. A great example is
      Western Electric the largest entity at the time, a well established electronics, transformer and switching (manufacturer!, unlike AT&T a service orientated corporation. When elephants fight, the grass suffers. Western Electric and AT&T were separate companies sharing human resources until AT&T jumped and filed the Cathode-Ray Tube patent before Western Electric. All the money and resources WE spent on the project, went down the drain. It was to be their downfall causing AT&T to take over the company. In 1922 John B. Johnson Harry Weiner Weinhart of Western Electric developed the hot cathode. See the pattern? We are sick and tired of this! The FCC should not be just a rubber stamp organization. AT&T is making plenty of money from their customers.

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  4. They don’t need any of this alleged spectrum for the rural buildout, so that’s a complete and utter canard. The whole rationale for the merge is a complete canard. It’s amazing to me that some of you are gullible enough to fall for this.

    This is about reducing competition and controlling scarce spectrum where it’s truly valuable — metro areas.

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  5. I think its funny that ATT thinks $69/person is too much money. How much are they going to get back from each subcriber?

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    1. Paulita Abou-Aly Tuesday, August 16, 2011

      I rest my point. Thank you!

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  6. you are missing the mark…. ATT nor Verizon want rural. they want urban areas… this is why ATT needs Tmo… to enhance the urban spectrum. Countryside would go to pot.
    Here is another issue. There are a number of small operators.. mom and pop companies who were getting roaming revenue from ATT… When Tmo deal goes through, there will no longer be att roaming and these small operators will die a slow death.
    This deal stinks.. especially for anyone rural.

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