Where does T-Mobile go from here for 4G?

The Department of Justice's decision to sue to block AT&T's (NYSE:T) proposed $39 billion acquisition of T-Mobile USA clearly has a great many implications for AT&T. Just as important though is what it might mean for T-Mobile's own network strategy, which is anything but clear at this point. 

T-Mobile has been aggressively deploying HSPA+ technology, and its faster HSPA+ 42 network is now available in 152 markets, covering 170 million POPs. However, the thinking was that once AT&T acquired T-Mobile, the combined entity would push ahead with a full-blown LTE deployment; indeed, one of AT&T's key justifications for the deal is that it will enable AT&T to deploy LTE to 97 percent of all Americans. AT&T intended to free up T-Mobile's 1700 MHz AWS spectrum for LTE, and migrate T-Mobile customers to AT&T's 1900 MHz spectrum. Now, all of that is in doubt.

If AT&T is unable to successfully close the deal, it will be forced to cough up cash, spectrum and roaming agreements worth a total of $6 billion, T-Mobile parent Deutsche Telekom confirmed in May. Around $3 billion of that will be cash, and Deutsche Telekom could theoretically use that bolster T-Mobile's entire network once it gained control of those assets, which could take time given the potential legal challenges involved.

The most straightforward path for T-Mobile would be continue to eek out advances with HSPA+ technology, which T-Mobile has dubbed "4G" and said delivers speeds comparable to LTE networks.

"It's a challenge for them because they don't really have enough spectrum to complement an aggressive 4G strategy," said Tolaga Research analyst Phil Marshall. "They are going to have to sweat those HSPA+ assets longer and attempt to refarm the spectrum over a longer period of time. It's going to take them a lot longer to get to an LTE infrastructure."

Marshall said one of T-Mobile's key problems is that there will not be as much innovation in the years ahead on HSPA as there will be for LTE. One way for T-Mobile to get past that hurdle and into LTE would be to partner with another company, he said.

The most likely partner for T-Mobile is Clearwire (NASDAQ:CLWR), which has an abundance of spectrum, and which T-Mobile held negotiations with last year. Clearwire intends to deploy a TDD-LTE network if it can get an additional $600 million in financing. Steve Elfman, president of Sprint Nextel's (NYSE:S) network operations, recently said that if the AT&T/T-Mobile deal feel through, T-Mobile would likely have to partner with a company like Clearwire or LightSquared. BTIG Research analyst Walter Piecyk noted in a research note, however, that Clearwire would not need Sprint's approval to sell some of its spectrum.

Marshall said there is enough Clearwire spectrum to support both T-Mobile and Sprint, Clearwire's majority owner and largest wholesale customer. However, he noted that there are potentially serious commercial complications at play--Sprint would effectively be allowing Clearwire to help a competitor. "They [T-Mobile] would basically sub-lease the spectrum from Clearwire and potentially provide network resources back to Clearwire in a wholesale agreement," he said.

Besides Clearwire, T-Mobile could also partner with Dish Network or the nation's cable companies. Dish Network has signaled its plans to build an LTE-Advanced network using 40 MHz of MSS S-Band spectrum. Separately, Cablevision has expressed interest in working with T-Mobile to add a cellular component to its Wi-Fi network. 

"Comcast, Time Warner Cable and Bright House sit on an attractive AWS spectrum position through their SpectrumCo joint venture," Piecyk wrote. "As we noted above, an independent T-Mobile provides cable companies with not only an additional potential partner but an additional buyer of spectrum."

For more:
- see this CNET article
- see this BTIG blog post (reg. req.)
- see this TMoNews post

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