Spectrum of Choices Confront AT&T Review

As regulators begin their review of AT&T's proposed purchase of T-Mobile USA, they should consider that approval might logically mean letting Verizon Wireless buy Sprint Nextel one day.

That might sound counterintuitive, given the T-Mobile deal would reduce the number of national operators from four to three and remove a low-priced competitor. But the deal is all about wireless spectrum. With data usage exploding, AT&T said in a filing with the Federal Communications Commission last week that it was using up its spectrum "at an accelerating rate." The deal would lead to more efficient use of spectrum, it said. Otherwise, AT&T and T-Mobile customers will see more dropped calls and slower data speeds. All carriers eventually will face capacity constraints. AT&T, though, faces a more immediate crunch, thanks partly to its early offering of the data-heavy iPhone.

But AT&T already has more spectrum than its closest rival, Verizon Wireless. On average in the top 20 markets, AT&T has about 100 megahertz, including spectrum it has agreed to buy from Qualcomm, while Verizon has about 90, estimates Spectrum Management Consulting. T-Mobile has about 55, so the deal could give AT&T as much as a 60% spectrum advantage over Verizon. Is that necessary? AT&T hasn't begun to use about a third of its spectrum, even excluding Qualcomm's. It is reserving this extra spectrum, an average of 30 MHz in the top 20 markets, for its next-generation LTE network. That new network will help meet exploding demand for wireless broadband. So why hasn't AT&T rolled out LTE, when Verizon launched its LTE network last December? If AT&T had moved faster, it would have begun to reduce the strain on its 3G network by shifting some heavy data users off it. Similarly, there is a question of whether AT&T has invested aggressively enough. Given its congestion problems, AT&T should have spent significantly more. There's no doubt T-Mobile would help AT&T better cope with rising data volumes in coming years. But the same logic would suggest future mergers will be necessary as other carriers confront capacity constraints. Unless regulators want to end up with a duopoly, they need to draw the line somewhere. Approval of this deal without huge divestitures arguably would be rewarding AT&T for its missteps. Instead, regulators should redouble their efforts to free up extra spectrum from sources such as broadcasters ahead of the inevitable crunch for all wireless operators.