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Spectrum at core of AT&T, T-Mobile merger

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In March, Dallas-based telecommunications giant AT&T Inc. announced a $39 billion cash-and-stock transaction to acquire the nation’s fourth-largest wireless provider T-Mobile USA. The merger being scrutinized by federal regulators faces fresh challenges from the Department of Justice and private antitrust suits by Overland Park, Kan.-based Sprint Nextel Corp. and Ridgeland, Miss.-based Cellular South Inc.

With the deal drawing regular national media attention and T-Mobile and AT&T employing about 1,800 people at call centers in Springfield and Joplin, the merger may have far-reaching implications in the area.

In September, Mike Haynes, regional manager for AT&T, and John Sontag, Missouri AT&T president, held an informal meeting with Springfield Business Journal editorial staff to discuss the need for the merger. Both executives indicated the growing desire for spectrum space to meet the demand for 4G long-term evolution service led to talks with Bonn, Germany-based Deutshe Telekom, the parent company of T-Mobile.

Spectrum refers to the range of airwave frequencies utilized by everything from cell phones to broadcast television to baby monitors. Because there is only a limited amount of spectrum available in any given area, mergers such as AT&T’s proposal are ways for companies to gain access to the coveted airwaves.

Pointing to the need, Sontag and Haynes said AT&T’s mobile data traffic grew 8,000 percent during the past four years, and by 2015, data traffic is expected to be at least eight times the 11 petabytes a month in 2010.

The Federal Communications Commission, the organization that regulates the airwaves, has reallocated some spectrum space in the last couple of years through auctions following the switch from analog TV signals to digital. Haynes and others have said the space was freed up because digital signals are more efficient.

Opportunities for new spectrum space, however, are few and far between, Haynes said. And with the proliferation of smart phones in recent years, customers are demanding more of wireless providers.

“The wireless phone network has been bursting with people using it – not just for voice, but for data. And the data side is really what is driving this need for more spectrum,” Haynes said in a follow-up interview. “(T-Mobile) has spectrum in places where we don’t own any, so there’s a plus. And in areas where we do have it, they provide us additional spectrum to use.”

According to the FCC, spectrum forecasts during the next five years predict that mobile broadband growth is likely to outpace technology and network improvements.

FCC Chairman Julius Genachowski said in a March 16 address about the president’s National Broadband Plan that demand for spectrum is growing.

“The clock is ticking on our mobile future, and we cannot solve our mobile challenges by snapping our fingers. We must act without delay to free up spectrum for mobile broadband,” Genachowski said in a document available on FCC.gov. “Multiple expert sources expect that by 2014, demand for mobile broadband and the spectrum to fuel it will be 35 times the level it was in 2009. … The looming spectrum shortage is real.”

Currently, Verizon Wireless holds 45 percent of the cellular and 700 megahertz spectrum combined, while AT&T carries roughly 33 percent, according to the FCC. In the broadband and advanced wireless spectrum, no licensee holds more than 23 percent of the available spectrum, with T-Mobile holding the most. Last week, Verizon rolled out its 4G network in the Springfield and Branson markets.

As part of the deal, AT&T has committed to expanding its 4G network to 97 percent of the country, reaching roughly 50 million more Americans than it currently serves and potentially covering 294 million people.

Not everyone, however, buys that the spectrum crunch is as bad as AT&T considers it.

In an April editorial by the L.A. Times, telecom analyst Dave Bernstein said the wireless provider has plenty of available spectrum, particularly in the bands its just beginning to use for 4G service. In addition, he said the rate at which people buy smart phones is expected to level off as the market becomes saturated.

Department of Justice officials seem to agree.

On Aug. 31, the U.S. Department of Justice filed suit to block the merger, saying the combination of the nation’s second and fourth largest carriers in terms of subscribers would likely raise prices for consumers and outweigh any benefits that the combined companies could provide.

“The department concluded that AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers,” the DOJ said in its ruling. “Moreover, the department said that AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.”

On Nov. 2, a federal judge ruled that Sprint and the nation’s eighth-largest wireless provider Cellular South, also known as C Spire Wireless, could move forward with their private antitrust lawsuits.

Sprint leaders maintain that not only Sprint, but also independent wireless operators and consumers, would be harmed by the proposed merger.

Tony Wyche, a spokesman for AT&T through St. Louis-based public relations firm Soapbox, said the company is pushing forward with the acquisition.

“We are working on parallel paths – seeking a solution that addresses the DOJ’s concerns while simultaneously preparing for trial. We remain confident that we will reach a successful conclusion,” Wyche said in an e-mail.

AT&T claims through the merger it would add $8 billion in investment resulting in up to 96,000 new direct and indirect jobs, and it would bring 5,000 wireless call center jobs back to the United States.

The DOJ trial date has been set for Feb. 13.

AT&T has said it intends to complete the deal by September 2012, when at least $3 billion in financial penalties to T-Mobile would be enforced.[[In-content Ad]]

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