A partially redacted letter supposedly sent from AT&T to the FCC has raised new questions about the pending merger between AT&T and T-Mobile, bringing to light the money at stake and whether the merger is necessary, as AT&T claims, to expand wireless broadband coverage.
Since February, AT&T, the second largest mobile network in the U.S., has been pushing for approval to acquire T-Mobile, the fourth largest, for approximately US$39 billion. The announcement was met with fierce opposition from other networks, most notably Sprint, who said the merger would create a duopoly among carriers, stifle competition and lead to poor service. Consumer advocacy groups also spoke out against the largest wireless companies becoming even larger and more powerful.
From the beginning, though, AT&T argued that the merger wouldn’t lead to poor service — actually, it was needed to guarantee the company could expand coverage to a rapidly growing consumer base whose need for higher-speed networks and spectrum coverage was expanding exponentially. In the initial filings and subsequent arguments in favor of the merger, AT&T claimed that without a merger it wouldn’t have the capacity to extend high-speed coverage to most of the country.
Tech companies like Microsoft and Facebook, which need high-speed, strong connections to support their products, came out in support of the merger, saying the digital marketplace was evolving and allowing for an acquisition that would increase coverage was essential.
How Bad Is the Leaked Letter?
However, the recently leaked letter, which has since been removed from its original spot on the FCC website but was later republished by DSLReports, calls into question whether the sole motive for the merger is to expand coverage. In the letter, AT&T claims it would have to pay $3.8 billion to expand 4G LTE coverage to 97 percent of the U.S. population, 17 percent higher than its current 80 percent. It’s a staggering sum, but nowhere near the $39 billion it would hand over to buy T-Mobile in the event its acquisition is approved.
The redacted letter also suggests Sprint had been toying with the idea of acquiring T-Mobile before AT&T was, making it the competition AT&T has alluded to, though never by name, when arguing on behalf of the merger.
The letter appears to suggest that AT&T is paying 10 times the amount of acquiring T-Mobile to keep it out of a competitor’s hands rather than to expand its own coverage capability, although the company said the expanded coverage isn’t possible without the merger.
“Our latest letter to the Commission is fully consistent with AT&T’s prior filings. This letter makes clear the dramatic scale of our commitment to bring 4G LTE mobile broadband to 97 percent of all Americans, and that without this merger AT&T could not make this expanded LTE commitment,” an AT&T spokesperson said in a statement provided to the E-Commerce Times by company representative Kate Tellier.
Although Sprint and other companies have argued that it’s possible for AT&T to expand without the merger, AT&T says increased spectrum and the merger must go hand-in-hand.
“That’s because the unique network synergies of the combined network far exceed the sum of all its parts, and generate the functional equivalent of a new spectrum, which is the best means of addressing the macro-level, system-wide constraints confronting AT&T,” said the AT&T spokesperson.
Merger Is a Solid Bet
Since the merger is still in its preliminary stages, terms are far from being set, and both companies will have to jump through legal hurdles and barriers before anything is final, making this letter just another bump in the road.
Even if this letter reveals the merger isn’t necessarily rooted in expanding coverage, AT&T has plenty of reasons to want a merger to go through besides increased capabilities.
“I believe that the scale benefits of the merger are relatively straightforward to project,” Aapo Markkanen, senior analyst in consumer mobility ABI research told the E-Commerce Times. “Network investment, retail footprint, handset procurement, service pricing and marketing — that’s pretty much what today’s telcos are made of.
“Besides those, there aren’t that many strategic variables that are anymore in their own control,” Markkanen added. “If, let’s say, Microsoft and Facebook, or Zynga and Rovio, were to merge, they would have a lot more unknowns, but for telcos, the post-merger futures are a good deal clearer and quantifiable.”