AT&T's justifications for T-Mobile deal run into static

Skeptics are arguing that AT&T's (NYSE:T) proposed $39 billion acquisition of T-Mobile USA is not the best way to improve AT&T's network and spectrum needs, undercutting one of the key justifications AT&T executives have made for the deal.

One of the reasons AT&T executives have argued the deal should be approved is that the combined network will be 30 percent more dense, and thus will improve coverage and capacity in cities such as New York and San Francisco, which have been problem spots for AT&T in the past. This will lead to better service for customers, AT&T executives have said. Additionally, the merger makes sense because the federal government has been too slow to free up mobile broadband spectrum, AT&T argues.

"This merger will more quickly create the spectrum efficiencies that we need to sustain demand, and it will free up more spectrum well in advance of the reallocation of spectrum that the government is working on," Jim Cicconi, AT&T's senior executive vice president of legislative and external affairs, said last week at a forum on spectrum held in Washington, D.C.

Instead of combining networks, critics of the deal assert, AT&T should look to add capacity from existing cell sites or scoop up spectrum in an FCC auction. "Putting the two networks together does not create spectrum," said Gerald Faulhaber, a former chief economist at the FCC, told the Wall Street Journal

AT&T argues that the deal will allow it to use T-Mobile's AWS spectrum for LTE deployments, which will increase the number of people receiving the company's LTE service. Critics argue that AT&T should look to underutilized spectrum from TV broadcasters or the federal government to solve its spectrum crunch.

AT&T is considering other methods to beef up its network, however. The carrier hopes to double the speeds of its forthcoming LTE network by leveraging carrier aggregation technology to glue together the 700 MHz spectrum it is working to purchase from Qualcomm (NASDAQ:QCOM) with its existing AWS, 1900 MHz or 850 MHz spectrum holdings.

Meanwhile, analysts are debating what the acquisition will do to customer prices, and what the effects on the market might be. Analysts at Bernstein Research argued in a recent research note that although the deal might lead to higher prices for consumers, that isn't necessarily a bad thing.

"Given the economies of scale of wireless, the constraints of CEOs and historic decisions with regard to spectrum, only further consolidation of the U.S. market is likely to deliver better infrastructure and lower prices," Bernstein analysts wrote. "In short, more wireless competition may (though there is no guarantee of this) deliver lower prices near term, but it will almost certainly deliver lower quality infrastructure."

For more:
- see this WSJ article (sub. req.)
- see this AllThingsD article

Related Articles:
Carrier aggregation: How AT&T will use Qualcomm's MediaFLO spectrum to double LTE speeds
Spectrum and coverage: What would a combined AT&T/T-Mobile look like?
AT&T's Stephenson: T-Mobile deal likely will require divestitures
Metered billing, AT&T/T-Mobile hot topics during CTIA carrier keynote
What happens to Sprint, Clearwire and LightSquared? AT&T + T-Mobile USA ramifications

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