Is AT&T sunsetting its 2G networks as well?

Updated. AT&T(s t) is asking its mobile customers with 2G-only phones to make the leap to 3G and 4G devices, warning them in a letter that their voice and 2G data quality may soon degrade in some areas, MarketWatch reported Thursday. It looks like in the aftermath of its failed merger with T-Mobile, AT&T is following its would-be acquisition’s lead, shutting down its older, inefficient GSM networks to clear room for newer, faster HSPA services.
1st Update. An AT&T spokesperson told us that the letters are going out only to customers in New York and only a small group of them at that. Whatever AT&T’s plans are for its nationwide 2G network, it’s starting off conservatively. The spokesman also said it is offering each of those customers a free 3G device, so AT&T appears to being taking the carrot, rather than the stick, approach to migrating its customers away from 2G-only phones.
2nd Update. A quick search of the AT&T retail site revealed that the carrier is still selling 2G-only devices, the Samsung a777 and the AT&T Z221. Both are among the most budget of the budget category in its GoPhone prepaid line, and the vast majority of its prepaid — and all of its postpaid — phones are 3G. But generally it’s bad form to tell one customer his 2G service is going to degrade while trying to sell a different customer a 2G-only device.
If AT&T is shutting down a significant portion of 2G networks, it may have found an answer to its capacity problems – at least in part. If it can’t buy new 4G airwaves, then it can cannibalize its older networks, harvesting their valuable frequencies for new HSPA and LTE capacity. That’s exactly the approach T-Mobile plans to take to get to LTE. When all is said and done, T-Mobile will have a sliver of GSM network remaining, but it will have an even bigger HSPA+ than it runs today, as well as an LTE network on par with AT&T’s and Sprint’s’(s S).
This isn’t an entirely new initiative for AT&T. After launching its initial HSPA networks over unencumbered PCS spectrum, it started replacing GSM capacity in the cellular bands with HSPA+ carriers in an effort to feed the iPhone’s(s aapl) insatiable hunger for data. At the time, though, AT&T had plenty of headroom. HSPA is known for being a mobile broadband technology, but it also supports circuit-switched voice calls much more efficiently than GSM (CDMA’s 3G equivalent EV-DO doesn’t support voice at all). When AT&T began harvesting cellular frequencies in 2009, much of its voice traffic and a large portion of its data traffic had already moved to HSPA, leaving it with a big and underutilized 2G network.
With these letters, though, AT&T is hinting it wants to accelerate that spectrum re-farming process rather than simply clear its GSM networks through natural attrition. If it can convince more 2G-only customers – either through the carrot of a promised upgrade or the threat of a loss of service – to move to 3G devices, it can move aggressively to add much-needed mobile data capacity.

Solving AT&T’s near-term capacity crunch

Will this solve AT&T’s so-called spectrum crisis? I assure you AT&T will claim it won’t, and I would agree with them in part. If the mobile industry is really going to offer huge buckets of broadband at much cheaper prices, it will need to take a multifaceted approach to adding capacity. It will have to build denser networks with Wi-Fi and small cells and take advantage of more spectrally efficient wireless technologies such as LTE and LTE-Advanced. But carriers will also need to bulk up on spectrum, even beyond the licenses they already hold in reserve. Sorry, but if you dream of one day having a consistent 50 Mbps mobile connection to your smartphone or tablet or a 100 GB monthly data plan that doesn’t equal a mortgage payment, then the simple fact is that AT&T and everyone else are going to need more airwaves.
But what re-farming will do is give AT&T a lot more breathing room as its HSPA networks become overloaded with iPhone and Android(s goog) traffic. AT&T won’t shut down its GSM networks entirely. There will be many customers that will refuse to move to 3G – that is, unless AT&T starts handing out free devices with no contract stipulations. It will also need to maintain significant GSM capacity for its machine-to-machine (M2M) connected-device services, a business that AT&T is aggressively growing and that is still dependent on ultra-cheap GSM M2M modules.
There may also be big regulatory hurdles to AT&T shutting down too much of its GSM capacity. A lot of small regional GSM operators – as well as big international carriers – depend on AT&T’s GSM networks for roaming. If AT&T’s 2G networks go offline, those operators’ nationwide footprints suddenly get a lot smaller. The Federal Communications Commission might not take too kindly to such a sudden blow to smaller operators.
Eventually, though, AT&T will be in a position to turn those decade-old networks off completely, just as it shut down the last of its TDMA networks in 2008. Two years before TDMA went dim, AT&T (then Cingular) began charging a $5-a-month fee to any customer that refused to upgrade to a GSM phone. It may not be too long before we see AT&T foist a similar fee on its GSM-only customers. That would surely result in a lot of outrage from customers and public interest groups, but ultimately the industry and consumers would benefit. If the mobile broadband revolution is to move forward, then we need to start sacrificing our older networks.