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With AT&T’s T-Mobile Merger All But Dead, It’s Time to Focus on Broadcasters

WASHINGTON, August 31, 2011 – With the Justice Department’s announcement on Wednesday that it will contest AT&T’s proposed acquisition of T-Mobile, the attention should now turn to what some consider the deal’s key driver: getting more wireless spectrum into the hands of broadband providers.

Drew Clark



WASHINGTON, August 31, 2011 - With the Justice Department's announcement on Wednesday that it will contest AT&T's proposed acquisition of T-Mobile, the attention should now turn to what some consider the deal's key driver: getting more wireless spectrum into the hands of broadband providers.

In a Wall Street Journal roundup this afternoon, analysts have noted that the Antitrust Division's decision to challenge the deal makes it "all but definitely dead," quoting a research report by Craig Moffet of Bernstein Research.

“AT&T’s acquisition of T-Mobile can be considered all but definitively dead…This clearly came as a significant shock to executives at both companies. But perhaps the most significant take-away from today’s events is that the end of the AT&T/T-Mobile deal is likely to be bad for all the U.S. carriers. There’s no good way to spin this for AT&T. They lose a key driver of synergies, and therefore earnings growth in 2012 and beyond. And they face a more dire spectrum shortfall, suggesting the need for higher capital spending and/or additional spectrum purchases.”

Two other vital perspectives to emerge in today's commentary come from Harold Feld, the legal director of the non-profit group Public Knowledge, and Bruce Gottlieb, the General Counsel of the publication National Journal.

Feld explored the delicate dance between the DoJ and the FCC. This was also an issue that probed in the Broadband Breakfast Club on May 17, 2011, on whether the FCC or the Justice Department would be tougher on the merger. Watch the free video here.

Feld said that AT&T now faces some steep hurdles, including getting the Federal Communications Commission to approve the merger, in spite of the DoJ's stance against it. He writes:

Bottom line is that there are really no good options for AT&T at this point. To come back for a victory, AT&T must (a) convince FCC to hold off; while, (b) convincing the court to go ahead despite the FCC being on hold. And then it has to win the case — which the odds do not favor.

It is true that the Antitrust Division's decision to press suit doesn't mean the merger cannot go forward, as when Oracle successfully acquired PeopleSoft over the opposition of the government.

But putting aside whether AT&T and T-Mobile may yet save their merger, the real question -- as National Journal General Counsel Bruce Gottlieb notes in his post -- is about the radio-frequency spectrum that is now the lifeblood of wireless broadband services.

The looming fight over wireless competition will be about how to dole out spectrum that is being repurposed from legacy uses like TV broadcasting to iPhones, iPads, and the like. Will it go to whoever can pay the most? Or will there be a finger on the scale for smaller providers, in the hopes of supporting competition?

The answer will matter tremendously because all carriers are facing spectrum scarcity as next-generation applications require ever-faster speeds. T-Mobile is in far and away the worst spectrum position of all the major carriers—indeed, that is one major reason it agreed to be acquired by AT&T.

The thirst for spectrum is the key reason why the frequencies currently in the possession of the major wireless providers -- AT&T, Verizon, Sprint and T-Mobile -- are the most intensively used on the radio dial. And what spectrum is the least intensively used? The spectrum used by television broadcasters. After all, more than 90 percent of television viewing now takes place over cable, satellite, or internet viewing.

Getting spectrum from low-intensity to high-intensity uses is a long-term goal of the FCC, and was a specifically itemized by the National Broadband Plan of March 2010.

But this past April, soon after AT&T's proposed acquisition of T-Mobile was announced, National Association of Broadcasters President Gordon Smith challenged the likelihood that the FCC would succeed in its efforts to transform spectrum from broadcast to broadband.

"Were I still a member of the Commerce Committee and looking at budgetary numbers of $30 billion that [incentive auctions are] supposed to provide, and the biggest bidder just walked out, two of them, I would wonder what the options are," Smith said at the time. "So as you begin to start to say, OK, we can compensate broadcasters, we can build out a public safety network we can add to the Treasury, I'm telling you can't do all those things."

If the DoJ's opposition does indeed kill the deal, Gordon Smith's challenge is likely to re-ignite another major broadband topic: how to keep satiating the demand that wireless providers have for the spectrum that may soon be formerly used by broadcasters.


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