Fast on the heels of AT&T’s accidental release to the public of a letter to the Federal Communications Commission, the agency requested further economic information from the company to support the carrier’s proposed acquisition of T-Mobile. Advocates of the deal say the FCC succumbed to outside pressures when making the request and that AT&T has already presented the agency with sufficient information to justify approval of the merger.
Before the U.S. Department of Justice sued to block AT&T’s acquisition of T-Mobile in September, the Federal Communications Commission was in the process of conducting its own review, which included a letter from AT&T featuring confidential information about AT&T which wasn’t redacted when AT&T publicly released the document. The FCC subsequently asked AT&T for further details on the company’s economic models used to convince regulators the deal was in the public’s best interest.
‘AT&T Is a Private Entity’
At issue is the information that AT&T could expand its 4G Long Term Evolution service from 80 percent to 97 percent of the country at a cost of $3.8 billion—roughly 10 percent of the cost for AT&T’s proposed $39 billion purchase of T-Mobile to achieve the same coverage using T-Mobile’s broadband spectrum.
The carrier responded with an economic explanation for its decision by stating its $39 billion bid for T-Mobile would return a larger profit to the company’s shareholders while providing much better coverage and service for AT&T’s current customers.
“AT&T is a private entity, and they can spend their money as they see fit,” said Mike Wendy, director of Media Freedom, a pro-market Washington, DC-based Web site. “They have determined that the best way to grow their company and their subscriber base is through the acquisition of T-Mobile, rather than spending billions of dollars on something that would go bust.”
The additional investment needed to go from 80 percent national LTE coverage to 97 percent LTE coverage would be a money-losing proposition, Wendy said, explaining acquiring T-Mobile would give AT&T possession of a known, concentrated spectrum and T-Mobile’s existing customer base, as well as other hard assets. Available spectrum is very tight, Wendy continued, and could cause slow connections that drive away customers, and spending $3.8 billion on buildout to reach small population areas would therefore result in a negative return-on-investment whereas the money spent on the T-Mobile merger would return a profit to the company’s shareholders while providing much better coverage and service for AT&T’s current customers.
Wendy says T-Mobile subscribers would benefit from the acquisition because its parent company, Deutsche Telecom, has already determined it will not make the investments necessary to improve and expand the network in the United States, one of the reasons the company is losing subscribers according to recently published figures. Deutsche Telecom is reinvesting in its European properties rather than in U.S.-based T-Mobile.
‘High Fixed Costs’
In the face of the DOJ lawsuit to prevent the acquisition, AT&T has vowed it will mount a legal campaign to ensure its completion. If AT&T wins, it would catapult the nation’s second- and fourth-largest national carriers past current largest wireless provider Verizon. Sprint, which purchased Nextel in 2005 for $38 billion, would remain the nation’s third-largest provider. Sprint-Nextel has been staunchly opposed to the AT&T-T-Mobile merger.
“Sprint has the necessary bandwidth,” said Jeff Kagan, an Atlanta, Georgia-based telecom analyst. “I don’t think this is over. AT&T will not walk away from this deal. They will continue to try to push this through as proposed. But they will get pushback. What they propose next is the key” to whether AT&T will succeed.
Wendy notes telecom is one of the few areas where jobs are being created when companies invest more in infrastructure. With the addition of T-Mobile, AT&T would have a better product and more powerful broadband tools, providing the resources for employment expansion, he says.
“This is a market with high fixed costs,” Wendy said. “Companies on the edge, like Sprint and T-Mobile, are having trouble, so it is natural for companies in these industries to consolidate.”
Phil Britt ([email protected]) writes from South Holland, Illinois.