The telecom business has always experienced government regulation and political involvement. Recently, for example, the Federal Communications Commission (FCC) issued its guidelines related to net neutrality: FCC 1, Business 0. That trend continues today with companies involved in the wireless business. More specifically, the government is heavily involved in the proposed merger of AT&T and T-Mobile as well as the approval of LightSquared’s nationwide Long-Term Evolution (LTE) network.
AT&T has offered to buy T-Mobile from Deutsche Telekom for $39 billion. The merger would make AT&T the largest cellular carrier, with Verizon a pretty close second. That leaves Sprint in a distant third place and T-Mobile in fourth. With the AT&T/T-Mobile arrangement, there would be only three major competitors in the mobile wireless space. Is that a good or bad thing?
The Justice Department and the FCC think it’s is a bad thing, mainly because it reduces the number of top cellular carriers to three theoretically, limiting customer choice and potentially raising prices. Some of the other carriers, like Sprint and Cellular South, are suing to block the merger, stating antitrust violations under the Clayton Antitrust Act. So now Justice and the FCC are deliberating. Will they let this go through or not? Initially I felt it would happen, but now I am not so sure.
The benefits of the merger seem to be that AT&T will have far greater coverage of GSM/WDCMA/HSPA/LTE by acquiring all the T-Mobile sites. That is a good thing for subscribers since greater coverage usually leads to broader, more reliable, and faster service. Furthermore, with more area covered, the implementation of the government’s National Broadband Plan becomes more realistic.
The downside, of course, is the threat of price hikes given the less competitive nature of the market. Of course, the inevitable consolidation of resources will lead to big layoffs—not such a good thing in our jobless economy. How all the other carriers will ultimately be hurt, if at all, is subject to interpretation.
One of the big issues is why AT&T wants to buy T-Mobile in the first place. Obviously AT&T would like to be number one in the wireless business. But according to some, T-Mobile wants to be acquired because it does not believe it can be competitive in the future LTE business in the U.S. It is doing very well now with its very high speed HSPA+ rollout. But apparently it lacks the spectrum and capital infusion needed to expand into LTE. Without more spectrum, the business will ultimately fail.
Whose fault is that? Is the FCC to blame for not making needed spectrum available? Do we blame AT&T and Verizon for bidding up the price of spectrum in the past auctions? Maybe T-Mobile does not have the deep pockets to compete in this lofty market. AT&T has lots of spectrum, and with T-Mobile’s network, greater and faster coverage can come online sooner.
We are in a wait and see mode right now until Justice and the FCC decide. In the meantime, AT&T is trying to figure out what parts of its business it can divest to make them appear less threatening and more appealing to the government. Is it trying to find ways to not have to pay T-Mobile a $6 billion cancellation fee ($3 billion cash, $3 billion spectrum) if the merger doesn’t happen?
And if the merger doesn’t happen, what will become of T-Mobile? Will it cease business? I doubt it, but if it did, there would be less competition. Will T-Mobile be sold to someone else? Probably. One possibility is Sprint. Its incompatible technologies (GSM/WCDMA/HSPA versus cdma2000/WiMAX) complicate any merger, but perhaps the two could eventually get together on LTE, though that seems unlikely too.
The feds really seem to believe that the wireless business will be less competitive if the merger occurs. While only three major carriers will result from the merger, what about all the smaller carriers like MetroPCS, Cricket, and the dozen or so others? Each is major competition despite its limited size.
I’m basically in support of the merger, as I believe government should stay out of it and let the businesses and markets decide. Do the government policy wonks and lawyers really know best? I doubt it. Businesses and markets will adjust. No merger is perfect, and total win-win deals are rare. Right now, I only give the merger a 30/70 chance of happening. Given the recent court decisions, we won’t see the outcome of this until February or March of next year.
The other interesting government meddling is in the big brouhaha between LightSquared and the GPS community. LightSquared wants to build out a nationwide LTE network using some L band (1 to 2 GHz) spectrum it owns. This massive project has begun. LightSquared plans to be a wholesaler of its service and not address the consumer directly. It will sell its network service to other smaller carriers or businesses. This appears to be a good business plan, and it will certainly help the National Broadband effort.
The bad news is that tests have shown that the LTE basestations interfere with GPS receivers nearby. The Global Positioning System (GPS) operates at 1575.42 MHz and the signals from those satellites are mighty weak. With LightSquared in the 1525- to 1559-MHz range, the basestation transmitters desensitize and otherwise interfere with any GPS receivers in the area, making navigation impossible or impaired. This is a pretty serious problem for the military as well as the Federal Aviation Administration, which uses GPS for air navigation. Furthermore, there are dozens of other commercial and personal uses of GPS that could get messed up.
Complaints to the FCC have resulted in the FCC stopping LightSquared’s progress until a solution is found. In return, LightSquared has offered several solutions. It plans to operate in its spectrum assignment as far from the GPS frequency as possible and at lower power levels. That’s a big help, but it doesn’t solve the problem completely, according to the military and others impacted by the problem. LightSquared contends that the wide bandwidth of GPS receiver front ends is the major cause of the problem. Most GPS radios apparently use a wide-bandwidth (≈ 20+ MHz) front end but should have used the military’s recommended narrower (<4 MHz) bandwidth. LightSquared is apparently working with GPS receiver supplier Javad GNSS to come up with a solution.
FCC is still debating any approval to LightSquared over the objections of the military and other affected parties. In a recent Congressional hearing, an Air Force general said that someone associated with the White House asked him to change his testimony so it did not impact the FCC’s decision to approve LightSquared’s solutions. Now Congress is looking into these allegations. It’s rumored that the investors in LightSquared offered political contributions for a favorable outcome. A congressional review continues.
One possible solution is a recent Sprint-LightSquared agreement that provides a way for Sprint to enter the LTE market (it is WiMAX now) in the future by using LightSquared’s wholesale services. The agreement could allow LightSquared to license unused Sprint spectrum in the 2.5-GHz bands for its network.
Who’s to say where this is going? I am all for LightSquared, but not at the expense of compromising a satellite navigation system that has become a part of so many other products and services. The best solution seems to be for LightSquared to move to alternate spectrum if available.
More Spectrum is the Solution
Here is the bottom line on both of these deals. The AT&T/T-Mobile and LightSquared situations are the result of not enough spectrum. The government controls the spectrum and needs to do more to relieve the spectrum-shortage problem that plagues the wireless business. More regulation is not the answer.