Why AT&T desperately needs T-Mobile.

Article first published as AT&T: Desperate and Out of Time? on Technorati.

When AT&T announced it was acquiring T-Mobile In March, 2011, it made quite a few people unhappy. After getting past the grumbling of T-Mobile customers who like T-Mobile, not AT&T, the grousing of Sprint who vehemently objects, and the grumpy media in general., and several other companies hate the takeover.

Most people assume that it's just another mega merger, big AT&T wants to take over a smaller T-Mobile to expand their customer base by almost 60 million to compete with Verizon, etc. Sure, that doesn't hurt, but that isn't the real reason.

The real reason is one simple word:   SPECTRUM.


AT&T has run out of it, they are in very serious trouble, and are desperate for T-Mobile. How desperate? A deal fact sheet says:

“In the event the transaction does not receive regulatory approval satisfactory to AT&T and the transaction does not close, AT&T will be required to pay a breakup fee of $3 (billion), transfer to T-Mobile certain AWS spectrum that is not needed by AT&T for its initial LTE roll out, and provide a roaming agreement to T-Mobile on terms favorable to both parties”.

That's right. AT&T loses $3 Billion, and additional spectrum. 

Think of wireless spectrum like a pipe. If the amount of water you need to flow is more than you can fit through the pipe, you have problems.

Problems for AT&T started with the iPhone. Wireless data / web usage on the AT&T network went up 8000% in 4 years. Unfortunately, unlike other carriers, AT&T has considerably lagged in the expansion and development of their network, (pipe), and they were not prepared for the ravenous data usage of iPhone users. The problem has only gotten worse.

In short, they need more pipe.

It was painfully evident during Apple's 2010 Worldwide Developers Conference. Steve Jobs was embarrassed when the WiFi network he had planned to use as the primary access wasn't working as planned... he then tried using AT&T as a backup option, he got "CANNOT ACTIVATE CELLULAR NETWORK . Steve Jobs has also considered dropping AT&T six times in the past.

Carriers can get more spectrum, (pipe) in 2 ways.

#1. They can buy it from the FCC in bidding auctions with other carriers bidding on it as well. If the carrier wins and gets more spectrum, they then have to pay more money to build out their network with more towers, upgrades, etc. This takes alot of time, and this is one commodity AT&T doesn't have.


#2. You can buy out another carrier (T-Mobile) with a compatible network, and combine network resources. This is what AT&T is trying to do.

By taking over T-Mobile, it gives them the time they need to focus on further expansion of their LTE network.

Please leave comments, I would love to hear from you.