Despite AT&T’s defeat, wireless deals will continue

AT&T (s t) has thrown in the towel on its acquisition of T-Mobile and in doing so basically kept the mobile industry stalled through much of 2011 as experts, executives and consumer organizations tried to figure out what such a large deal would mean.

Now that the deal is off the table, the industry can return to solving the big question that plagues wireless in the U.S.: How the heck will operators get the spectrum and build the networks they need to support robust demand for 4G wireless services and still make money. I’ve discussed a lot of this in a GigaOM report published on Friday, when the merger looked to be heading for its demise, (sub req’d) but now that the deal is officially dead, and we know a bit more about the terms of the breakup fee, it looks like T-Mobile might be star of the wireless industry in 2012 as everyone except AT&T and Verizon (s vz) try to make a deal.

Consolidation is inevitable, but AT&T can’t play

AT&T’s bid to get more spectrum wasn’t just an attempt to take out a competitor; it really did need more spectrum for its LTE network, and having T-Mobile’s AWS airwaves ready for an LTE deployment would have made AT&T’s migration path a lot simpler. As operators move from 3G to 4G services such as LTE, they are learning the costs associated with remaking and upgrading their networks are substantial. And as they look ahead to spectrum-hogging standards such as LTE-Advanced, they need more megahertz.

Verizon is tackling this through spending almost $4 billion to buy up AWS spectrum from cable companies, in a deal that poses competitive issues for the industry, but which are less clear-cut than AT&T buying T-Mobile. So Verizon hopes to be sitting pretty on up to 60 MHz of spectrum for 4G services in some major metro areas if the FCC clears its deal.

This leaves the smaller players such as Leap Wireless (s leap) and Metro PCS (s pcs) to wrangle some kind of partnership with T-Mobile, now that it may have some of the $4 billion breakup fee and some of AT&T’s airwaves. Dish Networks, the satellite TV player (s dish) trying to become a mobile operator, has cash and the desire to be a wireless operator with T-Mobile’s help, but the history of satellite guys getting into mobile is pretty iffy.

The most interesting mobile operator to watch in the coming year might be Sprint (s s) as it faces a decision: Pursue T-Mobile; stick with Clearwire(s clwr); or continue stringing along LightSquared, which plans to build a 4G LTE network but is having a hard time moving forward. When it comes to 4G, like Velma Kelly in Chicago, Sprint simply cannot do it alone. No one can, which means AT&T could try again with a more politically acceptable deal.

Today’s puzzle is consolidation without losing competition.

In a great explanation of why the FCC and Department of Justice fought back on the AT&T-Mo deal, the Washington Post’s (s wpo) Cecilia Kang laid out how AT&T’s aggressive lobbying and the change in political climate in the last few months helped turn off Ma Bell’s former supporters. While industry analysts agreed the deal would consolidate a large amount of spectrum in the hands of the nation’s top two carriers, it was really unclear back  when the deal was announced in March if it would pass muster with regulators. Many in D.C. thought it was a bold move, but AT&T would win out, especially given how important spectrum was in the policy debate.

Still, AT&T wasn’t wrong when it argued the economies of scale benefit mobile operators; it currently seeks to take advantage of those economies of scale with its proposed LTE network by creating a customized spectrum band plan that would cause troubles for smaller operators. For LTE and future technologies, economies of scale will be more important because they require a large number of megahertz to deliver higher speeds. So will AT&T try to find a way to partner up with a smaller operator or tap Clearwire to act as an LTE wholesaler?

If it did, it would be a sharp divergence of policy for AT&T and would begin remaking the image of a mobile broadband provider. Under such a scenario, AT&T might become a super MVNO, piecing together elements of its own and other networks to deliver service. It’s experience with offering Wi-Fi though its Wayport acquisition might help it here. Or it could force AT&T to think differently about how it builds its network, letting Wi-Fi play a greater role than it otherwise might have.

The bottom line is that consumers want to do a lot of things on their mobile phones. Many of those things today are only available via cellular networks, but some of them (surfing YouTube, (s goog) for example, or watching Netflix (s nflx) in the car) are not exactly the best use of licensed wireless. So, as we wait for T-Mobile to choose a dance partner and AT&T to decide if it wants to play nice with others or rethink its service offering, next year will be a much more interesting one for wireless. This year, there was a lot of movement, but not much of it was forward. Next year, though, we could see some real change.

Image courtesy of Flickr user KellBaily.