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AT&T's T-Mobile deal shows importance of spectrum

Stephen Lawson | March 22, 2011
More frequencies to carry faster services are key to mobile success, and the T-Mobile buy will give AT&T a spectrum advantage

FRAMINGHAM, 22 MARCH 2011 - AT&T's proposed acquisition of T-Mobile USA was driven in large part by the quest for radio spectrum, a commodity that rarely crosses the minds of mobile consumers but plays a big role in carriers' decision-making.

The $39 billion deal, announced Sunday but still awaiting regulatory approval, would create the biggest mobile operator in the U.S., with about 130 million subscribers. It would also allow AT&T to expand its planned LTE (Long-Term Evolution) footprint by an additional 46.5 million U.S. residents, bringing the fast 4G cellular network to 95 percent of the country's population, according to the companies.

Spectrum is the lifeblood of wireless networks, because the wider a band of frequencies a network can use, the more speed and capacity it can deliver to users. That makes it a highly sought-after resource. The need for spectrum has fueled battles among TV broadcasters and mobile operators. It has also contributed to many of the big mergers in the mobile business, including the complex relationship between Sprint Nextel and WiMax operator Clearwire, which formed a new company so they could pool spectrum in the same band.

In the case of AT&T and T-Mobile, both carriers say they face impending spectrum exhaustion without some new arrangement. That danger is real, especially for T-Mobile, and for AT&T in areas such as California, according to analyst Phil Marshall of Tolaga Research. Pooling its spectrum with T-Mobile's could help AT&T solve the data crunch that has led to complaints about iPhone performance in some cities, and give T-Mobile a path to LTE, Marshall said.

But more than that, the larger pool of spectrum could give the merged carrier an advantage against rivals like Verizon Wireless in introducing faster services, he said.

Consumers might not see the full benefits of AT&T's expanded spectrum for two years or more, but buying T-Mobile was the fastest way to get hold of the additional resources, according to John Stankey, president and CEO of AT&T Business Solutions.

"It lets us get more spectral capacity in the market sooner than any other industry alternative," Stankey said.

Both AT&T and T-Mobile have accumulated frequencies over the years from various auctions of regional spectrum licenses. Their spectrum holdings vary from city to city, but Marshall estimates that AT&T has between 85MHz and 90MHz of total spectrum, on average, across the country. T-Mobile has between 50MHz and 55MHz, he said. So, assuming it isn't forced to divest some licenses, the combined company would have between 135MHz and 145MHz in an average city.

 

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