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Leaked AT&T Letter Demolishes Case For T-Mobile Merger
Lawyer Accidentally Decimates AT&T's #1 Talking Point
by Karl Bode 02:42PM Friday Aug 12 2011
Yesterday a partially-redacted document (pdf) briefly appeared on the FCC website --accidentally posted by a law firm working for AT&T on the $39 billion T-Mobile deal (somewhere there's a paralegal looking for work today). While AT&T engaged in damage control telling reporters that the document contained no new information -- our review of the doc shows that's simply not true. Data in the letter undermines AT&T's primary justification for the massive deal, while highlighting how AT&T is willing to pay a huge premium simply to reduce competition and keep T-Mobile out of Sprint's hands.

We've previously discussed how AT&T's claims of job gains and network investment gained by the deal aren't true, with overall network investment actually being reduced with the elimination of T-Mobile. While AT&T and the CWA are busy telling regulators the deal will increase network investment by $8 billion, out of the other side of their mouth AT&T has been telling investors the deal will reduce investment by $10 billion over 6 years. Based on historical averages T-Mobile would have invested $18 billion during that time frame, which means an overall reduction in investment.

Yet to get the deal approved, AT&T's key talking point to regulators and the press has been the claim that they need T-Mobile to increase LTE network coverage from 80% to 97% of the population. Except it has grown increasingly clear that AT&T doesn't need T-Mobile to accomplish much of anything, and likely would have arrived at 97% simply to keep pace with Verizon. AT&T, who has fewer customers and more spectrum than Verizon (or any other company for that matter), has all the resources and spectrum they need for uniform LTE coverage without this deal.

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For the first time the letter pegs the cost of bringing AT&T's LTE coverage from 80% to 97% at $3.8 billion -- quite a cost difference from the $39 billion price tag on the T-Mobile deal. The push for 97% coverage apparently came from AT&T marketing, who was well aware that leaving LTE investment at 80% would leave them at a competitive disadvantage to Verizon. Marketing likely didn't want a repeat of the Luke Wilson map fiasco of a few years back, when Verizon made AT&T look foolish for poor 3G coverage.

The letter also notes that AT&T's supposed decision to "not" build out LTE to 97% was cemented during the first week of January, yet public documents (pdf) indicate that at the same time AT&T was already considering buying T-Mobile, having proposed the deal to Deutsche Telekom on January 15. In the letter, AT&T tries to make it seem like the decision to hold off on that 17% LTE expansion was based on costs. Yet the fact the company was willing to shell out $39 billion one week later, combined with AT&T's track record with these kinds of tactics, suggests AT&T executives knew that 80-97% expansion promise would be a useful carrot on a stick for politicians.

While the $39 billion price certainly delivers AT&T customers, equipment, employees, and spectrum, most of T-Mobile's network replicates AT&T's existing resources in major markets, and T-Mobile's network is significantly less robust in rural markets where AT&T would want to expand. While the deal provides AT&T with a shortcut to sluggish tower builds in a few select markets, by and large AT&T will be faced with terminating many redundant positions and decommissioning a lot of duplicative equipment. They'll also have to close a large number of retail operations and independent retailers.

Again, the reality appears to be that AT&T is giving Deutsche Telekom $39 billion primarily to reduce market competition. That price tag eliminates T-Mobile entirely -- and makes Sprint (and by proxy new LTE partner LightSquared and current partner Clearwire) more susceptible to failure in the face of 80% AT&T/Verizon market domination. How much do you think wireless broadband market dominance is worth to AT&T over the next decade? After all, AT&T will be first to tell you there's a wireless data "tsunami" coming, with AT&T and Verizon on the shore eagerly billing users up to $10 per gigabyte.

Regardless of the motivation behind rejecting 97% LTE deployment, the letter proves AT&T's claim they need T-Mobile to improve LTE coverage from 80-97% simply isn't true. That's a huge problem for AT&T, since nearly every politician and non-profit that has voiced support for the merger did so based largely on this buildout promise. It's also a problem when it comes to the DOJ review, since proof that AT&T could complete their LTE build for far less than the cost of this deal means the deal doesn't meet the DOJ's standard for merger-specific benefits.

Update: We've included the document above after numerous requests. We'll also note that AT&T is telling news organizations like PC Magazine that this doc was "consistent with prior filings," which simply isn't true. The document, again, highlights for the first time that AT&T clearly doesn't need T-Mobile to deliver LTE to 97% of the population.

Update 2: AT&T's response to the fact their lawyer accidentally posted a document that indicates AT&T has been lying? Apparently it's to lie about it.

209 comments .. click to read

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Blackwood, NJ

2 recommendations

reply to PapaMidnight

Re: The idea that the government has the right

said by PapaMidnight:

Oh gosh, something from the government that actually benefits consumers. It's pure evil incarnate and must be smitten down!

it's not the Federal government's role to pass legislation, regulate, or promote ideas that "benefit" consumers. it's their job to ensure disputes between inter-state parties (including businesses) are settled. There is no direct Constitutional authority for the Federal government to be telling which businesses can merge and which can't, what a business can build on its own property and how much electricity aka carbon dioxide it can produce. These are left to the states to regulate, if they so choose.

THe government wasn't created to "protect" consumers from businesses, it was designed to secure our natural human rights and to protect the country from other countries. anything outside of that scope is immoral and counter to our founding.

fifty nine

Sussex, NJ

3 recommendations

reply to Somnambul33t
said by Somnambul33t:

to tell 2 private companies that they are not allow to merge is counter to the history of this country and to free market systems. i don't care if a leaked document stated that ATT would have 99% market share, i would still not want some paper pusher telling them who can and can't merge.

Everyone rightly complains about what i call Crony Capitalism, or the government picking winners and losers. the FCC and FTC do this every.single.day. Anyone (rightly) complaining about government bailouts, special political deals, and monopolies can't praise the FTC or FCC for blocking a merger without being the epitome of a hypocrite.

Those companies are using public airwaves and utility easements to conduct their business. In other words, they are using a natural resource and forcibly seized private property to conduct business.

The Government has every damn right to tell them how to use those things.