T-Mobile Stays on Offensive Against Verizon Deal With Cable

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By Paul Barbagallo  

T-Mobile USA Inc. executives continue to meet with Federal Communications Commission officials to voice their strong opposition to Verizon Wireless's proposed $3.6 billion purchase of airwaves from the nation's largest cable operators.

T-Mobile, itself the target of a takeover bid last year by No. 2 U.S. wireless carrier AT&T Inc., has emerged as the most outspoken critic of the deal, which it argues would consolidate too much spectrum in the hands of Verizon, the No. 1 wireless carrier in the country.

According to a May 17 filing posted on the FCC's website, T-Mobile chiefs and Judith Chevalier, professor of economics and finance at Yale School of Management, met most recently with agency staff May 15. Chevalier explained that Verizon already has significantly more spectrum “free and clear” for the deployment of 4G LTE (fourth-generation, long-term evolution) mobile broadband services than any of the other three nationwide wireless carriers--AT&T, Sprint Nextel Corp., and T-Mobile--combined. If the proposed transaction were completed, Verizon would control an average of 63 megahertz of spectrum for LTE, while AT&T, Sprint, and T-Mobile together ould occupy only 50 MHz, she noted, citing a recent Deutsche Bank analysis.

Chevalier went on to contend that even though Verizon does not have an “immediate need” for the spectrum to deploy LTE services, the spectrum is valuable to Verizon because it “forecloses competition.”

“As demonstrated by T-Mobile's [filings with the FCC], and confirmed by Professor Chevalier's economic analysis, the public interest will not be served by allowing Verizon Wireless to add to its existing stockpile of warehoused spectrum which, in the absence of the transactions, could be used by competitors to deploy LTE services to the benefit of competition and consumers,” wrote Jean Kiddoo, counsel to T-Mobile, in the filing.

T-Mobile also held ex parte meetings with the FCC on May 11 to discuss the company's petition to deny the deals.

T-Mobile Sees Itself as Better User of Cable Spectrum.

During one meeting, the company gave a PowerPoint presentation detailing how it would make more efficient use of the cable companies' AWS spectrum.

“T-Mobile would work to deploy new AWS spectrum immediately for LTE,” the company noted in its presentation, which was made available on the FCC's website May 15.

One reason, T-Mobile said, is that the spectrum is compatible with the company's existing network and can be integrated into its current network moderation program.

The spectrum licenses that Verizon is seeking to acquire were originally purchased at the AWS auction for $2.4 billion in 2006 by a joint venture of Comcast Corp., Time Warner Cable, Bright House, Cox, and Sprint Nextel. Sprint Nextel abandoned the venture in 2007. Last November, Cox, citing a “lack of wireless scale necessary to compete in the marketplace” did the same. (Sprint's spectrum is not included in the sale.)

For its part, Verizon claims that the additional AWS spectrum nationwide will help the company avoid what has been termed “spectrum exhaust,” especially in suburban and urban areas. Since Apple made the iPhone available on Verizon's network, Verizon has experienced increasing network congestion similar to that witnessed by AT&T, the first wireless carrier to offer the iPhone.

But perhaps most important, the spectrum will allow the company to greatly expand its 4G network in both the AWS band and the 700 MHz band, in which the company currently occupies a contiguous, nationwide footprint. Even without the cable companies' spectrum, Verizon already has 13 AWS licenses in the Northeast, Southeast, Great Lakes, Mississippi Valley, and Louisiana. From the cable operators, Verizon would acquire a total of 122 nationwide AWS spectrum licenses.

In that AWS auction, T-Mobile was arguably the most aggressive in acquiring licenses in the Northeast. The cable operators' spectrum is not only all in the AWS band, but covers 259 million people nationwide.

T-Mobile: Verizon Has Unused Spectrum.

Last month, T-Mobile also met with FCC officials at the company's headquarters in Bellevue, Wash., when Chief Executive Officer Philipp Humm pointed out that Verizon has yet to use some of the spectrum it holds.

Allowing Verizon to acquire more would allow the company to build on its “unused spectrum inventory.”

On a “MHz-POPs” basis, Verizon holds 22 percent of the spectrum usable for mobile voice or broadband service; AT&T has 21 percent, Sprint Nextel, 13 percent; T-Mobile, 12 percent; and Clearwire, 12 percent. (The term “MHz-pops” is defined as the product derived from multiplying the number of megahertz associated with a license by the population of the license's service area.)

Spectrum holdings are expected to play a key role in the FCC's final judgment on Verizon's proposed spectrum agreements. If the FCC approves the deals, a divestiture of assets, notably spectrum, is likely.

For T-Mobile's filings, visit http://apps.fcc.gov/ecfs/proceeding/view?name=12-4.