AT&T to FCC: With T-Mo, We’ll Be Better. Promise.

Say what you will about the transaction itself, but AT&T’s (s t) 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 (s vz) 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 (s aapl) 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 (s pcs) or Leap Wireless (s leap) 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.