Spectrum Issues Emerge Bigger than Ever After DOJ Sues to Block AT&T/T-Mobile

AT&T has argued in support of the transaction that without T-Mobile spectrum it would have only 5 MHz of spectrum left to expand its network in New York City by the end of next year (CD March 31 p7). The company also warned it faces spectrum exhaustion in many markets -- urban, suburban and rural -- without more frequencies (CD April 21 p1). AT&T’s plan was to build out its 4G network using AWS spectrum from T-Mobile where it doesn’t have adequate 700 MHz spectrum. AT&T planned to pair that spectrum with 700 MHz spectrum it hopes to buy from Qualcomm to offer improved throughput speeds.

T-Mobile, which sat out the 700 MHz auction after going big in the AWS-1 auction, doesn’t have the spectrum it needs to offer 4G as a standalone company, AT&T/T-Mobile said in their April 21 filing asking the FCC to approve the merger. “T-Mobile USA has ‘no clear path’ to LTE,” the filing said. “Even in areas where T-Mobile could try to ‘refarm’ its existing spectrum to make room for LTE, it would face serious competitive disadvantages."

DOJ’s lawsuit “abundantly underscores just how important an input spectrum is to competition in the wireless space and to the development of mobile broadband generally,” said Jeff Silva, analyst at Medley Global Advisors. “At the same time, my sense is that projected auction revenues and broadcast industry impacts will continue to be the key drivers in debate over whether to incorporate incentive auction/public safety legislation into any deficit-reduction package crafted by the bipartisan super committee."

"Maybe this would help to light a fire under what’s been the missing piece -- that there has not been a [major] spectrum auction since the 700 MHz auction,” said a wireless lawyer. “It’s time to get more spectrum out there. … That’s the underlying point. We need more spectrum.” The lawyer also said the story is not over: “DOJ doesn’t have a good track record in court. I think there’s some easy challenges they could make."

"I think, ultimately, everybody agreed that the merger would lead to enormous efficiencies in terms of spectrum and in terms of creating additional capacity,” said a wireless industry lawyer who supported the deal. “If the consolidation path is ultimately blocked, then the question becomes where does the additional capacity carriers need to support robust LTE networks come from? That’s a real challenge. It certainty is going to put the onus on federal government policy to figure out how they expedite the allocation of new spectrum."

Holding incentive auctions for broadcast spectrum “becomes even more important,” if AT&T doesn’t buy T-Mobile, conceded merger opponent Steve Berry, president of the Rural Cellular Association. Other spectrum will take five to six years to bring online “even if they work at lightening speed,” he said. “Normally, it’s a 10-year process once you have the spectrum available and you identify the users."

If the deal doesn’t go through, it will highlight the need to get more spectrum online,” said TMF Associates President Tim Farrar. “It will throw the spotlight back on incentive auctions, and on the DISH and LightSquared plans, he said. “Unfortunately, as the [Congressional Budget Office] pointed out, the current incentive auction plan is infeasible … and LightSquared apparently will be sent back for more testing."

The DOJ action may increase the urgency in Congress to pass spectrum legislation, a wireless industry lobbyist said. Some legislators may have viewed the AT&T deal as at least a temporary solution to a commercial spectrum crunch, the lobbyist said. But a Senate aide doubted if any lawmaker saw AT&T/T-Mobile as an answer to the spectrum crunch, since it only would help the acquirer in buying more spectrum. The proposed acquisition may have slowed the cogs on spectrum legislation because of the consolidation that would occur from the deal, and since T-Mobile was one of the biggest advocates for spectrum reform, the aide said. Before the deal, T-Mobile had led the charge seeking more spectrum to compete with the larger carriers, the aide said.

Other factors have already made spectrum legislation an urgent issue on Capitol Hill, including the upcoming 10th anniversary of 9/11 and the budget debate, lobbyists said. The budget, not telecom policy, is currently driving spectrum legislation on the Hill, a broadcast lobbyist said. Legislators who opined on AT&T’s deal have appeared more focused on jobs and consumer issues than spectrum policy, the lobbyist said. The Joint Select Committee on Deficit Reduction is looking for $1.5 trillion in savings, and is expected to look at spectrum (CD Aug 11 p1). If the spectrum debate “drags on” after the special committee finishes its process, the DOJ action may become more significant, the broadcast lobbyist said.

"The merger demonstrates the near- and long-term need in the marketplace for more spectrum,” a GOP Senate Commerce Committee aide said. “Additional spectrum will spur new innovation, investment, and competition, no matter one’s view on the AT&T/T-Mobile merger. Given our country’s economic problems, there should be a lot of urgency to pass [the Spectrum Act (S-911)] very quickly since it would create hundreds of thousands of new jobs and hundreds of billions of dollars in new economic activity."

Congressional concern may not translate into action, warned MF Global analyst Paul Gallant. “It’s tempting to say that rejection of AT&T/T-Mobile makes spectrum legislation more likely, but I doubt that’s the case,” he said. “Spectrum auctions are being driven by bigger factors like closing the deficit and building a public safety network."

Several of those who opposed AT&T/T-Mobile said they don’t see the end of the deal as a game changer on spectrum. “From our perspective, AT&T has plenty of spectrum if they just follow Verizon’s lead and aggressively deploy 4G,” said Andrew Schwartzman, senior vice president of the Media Access Project.

Public Knowledge Legal Director Harold Feld said AT&T always acknowledged the deal was a “stop-gap” measure and more spectrum must become available. “From a policy perspective, this was a distraction, not a solution,” he said Thursday. “It threatened to create a huge imbalance in market and did nothing to get at the real problem of spectrum access. Bluntly, solving the spectrum problem requires cooperative strategies -- spectrum reuse, spectrum roaming -- and enhanced network efficiency, as well as access to more spectrum for ‘everyone.'"

Spectrum sharing is one answer, said Michael Calabrese, with the New America Foundation. “More wireless competition requires more spectrum, although not necessarily all of it needs to be licensed by auction to a single carrier with the obstacle of a huge upfront payment to the government,” he said. “What will help T-Mobile and especially the smaller, regional and rural carriers to compete is spectrum for an open wholesale network that can supply as-needed capacity and roaming capability to a number of competitors. Currently, the mobile satellite spectrum held by LightSquared and by Dish provide the best opportunity for the FCC to give a licensee valuable flexibility to deploy a nationwide LTE network in exchange for conditions that promote competition in the market.”