Only one major telecom merger has been blocked in the last decade: DirecTV-Dish. AT&T could be the second failure. Money is the mother's milk of politics, Willie Brown always says, but even AT&T's money may not be enough this time.

Analyst Craig Moffett of Sanford Bernstein estimates a surprising 35% chance of failure for AT&T's proposed acquisition of T-Mobile. He supports the deal and is carrier friendly, but sees a one in three chance the government will block it. The respected John Hodulik of UBS believes regulatory approval will be "touch and go," while Stifel analysts Arbogast and Kaut, among the best in D.C., will go no further than "more likely than not" -- although they believe AT&T could succeed in "muscling the deal through."

AT&T insists they need the deal despite reporters around the country tearing apart key AT&T claims. I was amazed they now assert a desperate spectrum issue. AT&T President John Stankey has been insisting for two years that spectrum shortages were not the cause of their network problems. In the Wall Street Journal, Professor Gerry Faulhaber comments that "putting the two networks together does not create spectrum." There would be only a minor improvement in utilization rates if the networks are merged. T-Mobile has 34 million customers who will probably demand more data after they upgrade to smartphones.


From Los Angeles, Jon Healey of the Times writes "Spectrum crisis? What spectrum crisis?" Jon explains Cisco projections that mobile data growth will drop by more than half are simply common sense. Once the majority of users have migrated to smartphones, "much of the growth goes away," he notes. Using the Cisco data, I created a chart (right) of falling growth rates.

Across the nation, AP's Peter Svensson reports, "AT&T talks of spectrum shortage, yet it has plenty." He adds AT&T's own numbers "a much lower rate" of growth going forward, noting that with much of T-Mobile's spectrum already in use, the deal won't result in fresh airwaves becoming available. In New York, even the normally business friendly Wall Street Journal headlines "Skepticism Greets AT&T Theory, Telecom Giant Says T-Mobile Deal Will Improve Network Quality, but Experts See Other Options." They also discovered that even in New York, 30-40% of tower capacity is unused.

AT&T predicts the deal will take twelve months to close. After that, they will have to swap millions of T-Mobile's 3G phones to efficiently use the network, meaning that most of the proposed benefits will take two to three years to materialize. AT&T could simply put radios on those additional towers in less time than that, or otherwise increase capacity. Within 18-24 months, AT&T can dramatically expand the use of spectrum-efficient technologies. They have already proven in the field WiFi phones, hotspots, femtocells, distributed antenna systems and other cost-effective new gear.


After the supposed spectrum crisis, AT&T's second benefit is even more dubious. President Obama set a goal of 98% LTE coverage in 2016. AT&T says they're now committed to expanding 4G LTE deployment to an additional 46.5 million Americans, including in rural, smaller communities, "for a total of 294 million or 95% of the U.S. population" by sometime around 2016. That would seem a major contribution until you review the facts. As this website has highlighted, the government's 98% goal would also be reached with or without an AT&T-T-Mobile merger.

Verizon will reach almost all of those homes ahead of AT&T. Verizon's LTE should cover 285 million subscribers by 2013 according to CTO Dick Lynch. The company insists they'll reach "nearly all the population" as they continue building in later years and will be at AT&T's 95% figure or higher by the time AT&T deploys.

AT&T CEO Randall Stephenson's plan for 2013 is only about 240 million. The builds will nearly entirely overlap as both companies seek dense populations, towers already built and good road coverage. Verizon's planned coverage is in red and AT&T's in yellow. Because AT&T & Verizon have similar buildout plans, the combined U.S. total coverage in blue is very close Verizon in red. The incremental coverage provided by AT&T's network will likely be only 1-2% of the population.

My take? AT&T has unlimited money, some of the best lobbyists in the world, and a remarkable ability to persuade D.C. Cosmetic "concessions" are significant enough to change everything, and I wouldn't bet against them.

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