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Analysts: AT & T LTE Rollout Likely Curtailed If DOJ Blocks Merger

Wed, 08/31/2011 - 12:14pm
Andrew Berg

Assuming for a moment that the Department of Justice’s (DOJ) suit filed today to stop the merger of AT&T and T-Mobile USA actually succeeds, to what extent would AT&T have to scale back its plans to roll out LTE to 97 percent of the nation.

As one of the key justifications for the deal, AT&T has maintained that an acquisition of T-Mobile would allow the carrier to absorb some of the costs associated with building out LTE in currently underserved rural areas. The price tag? According to an unredacted letter filed with the FCC and picked up by Wireless Week earlier this month, the company would be paying $3.8 billion to meet its goal of 97 percent LTE coverage across the United States.

In that unredacted letter, AT&T counsel Richard Rosen stated that “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.”

The company had hoped that additional revenue streams from the acquisition of T-Mobile would be sufficient to cover the amount of the proposed buildout. So what now?

First things first, AT&T will be appealing the DOJ’s decision to file suit on the matter, saying in a statement today that “the DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.” But what if the DOJ meets that burden of proof? Are we done talking in terms of 97 percent LTE coverage for AT&T?

Analysts seem to agree that while killing the deal presents a bump in the road for AT&T, it’s not quite as crippling as AT&T would have had regulators considering the deal believe. Still, should the deal fall through, AT&T may be scaling back to that 80 percent figure, while simultaneously adopting a less ambitious timeline.

Tuong Nguyen, principal research analyst for Gartner, says that a company like AT&T, which is competing with the likes of Verizon Wireless, has to have an alternative in place for pushing LTE forward in the event the merger falls through.

“I would think that they have plans beyond relying on just the extra spectrum provided by this merger,” Nguyen says, adding that the main impacts for AT&T will be on coverage and capacity in the short term.

Jan Dawson, chief analyst for Ovum, agrees. “Ultimately, it’s really just a matter of timing,” Dawson says. “I don’t think AT&T was planning to get to a certain point and then stop forever. I think it was just a question of X coverage by date Y. So the question is just how much longer does it take to get to that 97 percent, rather than do they stop at some lower number.”

Dawson says the real question is how AT&T manages its rollout without additional spectrum, which the carrier had pitched as a caveat to its 97-percent promise. By contrast, Verizon Wireless has been pretty vague about blanket coverage, Dawson says, noting that the carrier might have learned a few lessons along the way with regard to promises.

“Verizon had a recession in the middle of rolling out FiOS, which significantly altered demand for that product, and I think they don’t want to tie their own hands by committing to blanket coverage by a specific date just in case it doesn’t make economic sense at the point when they get there,” Dawson says.

So where does this leave T-Mobile, which presumably would have been hanging on AT&T’s LTE-laced coattails if the merger had been approved? Phil Solis, research director of networks for ABI Research, says T-Mobile has no choice but to pursue an LTE strategy of its own.

“T-Mobile has taken HSPA+ as far as they can, but it can only go so far,” Solis says. “When you move to 4G, forget that the speeds are overlapping, but 4G is the basis of a roadmap that’s going to extend far out,” Solis says, suggesting that given its current spectrum holdings, T-Mobile will probably have to proceed with some sort of wholesale agreement, possibly in partnership with Clearwire.

In the end, it looks like AT&T’s failure to prove that the benefits of the deal outweigh the adverse effects on competition is at the heart of why the DOJ chose to act and the reason the carrier has to scale back its ambitious LTE roadmap.

Dawson of Ovum says the DOJ’s skeptical reading of the deal hints at an obvious truth. “I don’t think you spend $39 billion for one reason,” Dawson says. “I think AT&T has multiple reasons for wanting to do the deal… It’s not stated, but I think this would have gotten the monkey off its back... They certainly would be able to take T-Mobile out of the picture as a competitor, which has obvious benefits that could be worth spending some money on.”

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