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Is $3.8bn the true cost of AT&T’s LTE plans?

Posted By TelecomTV One , 15 August 2011 | 0 Comments | (0)
Tags: AT&T LTE 4G Wireless Policy Regulation FCC Broadband

Does AT&T really believe that it needs to buy T-Mobile USA if it is to increase its mobile broadband coverage, and that any other solution would be economically unfeasible? A leaked document provides new insight into the controversial deal. Guy Daniels reports.

If AT&T is granted regulatory approval to acquire T-Mobile USA it will become the largest carrier in the USA and will form an effective national duopoly with rival Verizon, locking out the other wireless players who would be unable to compete in terms of scale. With wireless data traffic increasing by the day, wireless broadband is definitely the key market segment for this decade – with enormous revenue and profit potential for those able to best take advantage.


AT&T continues to tell regulators and the media that it needs T-Mobile’s spectrum if it is to increase LTE network coverage from 80 to 97 per cent of the US population, providing service to an additional 55 million Americans. Just watch our exclusive interview with CEO Randall Stephenson to hear it for yourself. But does it?


Late last week a document briefly appeared on the FCC website that was purportedly from a law firm working for AT&T on its T-Mobile USA merger. But no sooner had it appeared when it vanished. Almost without a trace, but not quite…


The document was spotted by some eagle-eyed US journalists, who managed to save the important details. Although it was partially redacted, there was still plenty visible to excite the wireless commentators and to re-ignite the controversial $39 billion AT&T/T-Mobile USA merger. According to Wireless Week, the leaked document detailed a meeting between AT&T’s lawyers and FCC officials. The letter revealed AT&T counsel Richard Rosen as saying:


“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 per cent of the US population was the most that could be justified.”


The document added that the proposed T-Mobile merger 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 per cent of the US population.”


Interestingly, the document revealed that AT&T plans to upgrade 44,000 nodes to LTE over the next two years. It also showed that AT&T had debated doing preparatory work at cell sites as part of its HSPA+ upgrade programme , but decided the plan “did not produce sufficient savings” and would cost about $220 million this year.


Karl Bode at DSL Report reviewed the document and found plenty in the letter that he says undermines AT&T's primary reason for the deal, while showing how AT&T is willing to pay a huge premium simply to reduce competition and prevent rival Sprint from buying T-Mobile.

Does AT&T, with fewer customers and more spectrum than main rival Verizon, already have all the spectrum it needs for increased LTE coverage? Does it just want to remove a rival (and pocket an extra 33 million or so customers)? Here’s Bode’s take on the leaked document:


“For the first time the letter pegs the cost of bringing AT&T's LTE coverage from 80 per cent to 97 per cent at $3.8 billion – quite a cost difference from the $39 billion price tag on the T-Mobile deal. In the letter, AT&T tries to make it seem like the decision to hold off on that 17 per cent LTE expansion was based on costs. Yet the fact the company was willing to shell out $39 billion one week later, combined with AT&T's track record with these kinds of tactics, suggests AT&T executives knew that 80-97 per cent expansion promise would be a useful carrot on a stick for politicians.”


So is AT&T really just paying the $39 billion to reduce competition (plus a little fast-tracking of its original organic market expansion plans)? That would upset a lot of politicians who have already given their support for the deal, based on the rural build-out promise – except those politicians who are merely happy to pocket campaign contributions from AT&T and say whatever they think their donors want them to say. As Bode adds:


“It's also a problem when it comes to the Department of Justice review, since proof that AT&T could complete their LTE build for far less than the cost of this deal means the deal doesn't meet the DOJ's standard for merger-specific benefits.”


AT&T’s vast PR engine revved into life and started damage control, spinning the line that the document didn’t contain anything that was new and we shouldn’t get so worked up about it. AT&T’s PR people are very good at pressuring those who it thinks have erred, regardless of the actual truth. As are the PR people of most large telcos; it’s their job to promote the company message.


But in this case they were being, at best, misleading. AT&T spokeswoman Margaret Boles told Wireless Week:


“There is no real news here. The confidential information in the latest letter is fully consistent with AT&T’s prior filings. This merger will unleash billions of dollars in badly needed investment, creating many thousands of well-paying jobs that are vitally needed given our weakened economy.”


The ‘Thoughts from the Sidelines’ blog received this wonderful addition from AT&T’s PR team:


“Our latest letter to the Commission is fully consistent with AT&T’s prior filings. This letter makes clear the dramatic scale of our commitment to bring 4G LTE mobile broadband to 97 per cent of all Americans, and that without this merger AT&T could not make this expanded LTE commitment… It is by far the surest, fastest and most efficient solution to the impending wireless spectrum exhaust. That’s because the unique network synergies of the combined network far exceed the sum of its parts, and generate the functional equivalent of new spectrum, which is the best means of addressing the macro-level, system-wide constraints confronting AT&T.”


The biggest beneficiary of the leak will doubtless be Sprint, whose relatively small voice of opposition struggles to be heard above the PR din. Whether it’s enough to cast doubt in the minds of the regulators and politicians is debatable though. It will be a brave person who bets against the AT&T machine.



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Why AT&T needs the T-Mobile deal