AT&T to Plow More Billions Into Spectrum Hunt
AT&T is throwing a lot of money at the spectrum shortage problem, but this may be a case of trying to buy water in a desert -- there just doesn't seem to be enough spectrum available at any price. It's not likely AT&T can grab a big chunk through one flashy deal, either. Regulators didn't like its plan to buy T-Mobile at all. So it will have to go after smaller targets, which no doubt will have many suitors.
Nov 7, 2012 1:25 PM PT
AT&T on Wednesday announced that it will boost capital spending by as much as 16 percent to US$22 billion a year for the next three years to upgrade its wireless and wireline networks. The increase is necessary to compete with Verizon Communications, which is currently upgrading its own network.
AT&T has "been active in many ways, including procuring new spectrum through a combination of deals and repurposing WCS spectrum for LTE," said AT&T spokesperson Lauren Nadig. "In the near-term, between 2012 and 2014, we will round out our spectrum holdings in bands where we currently operate. Over the mid-term, we are pursuing deployment of nationwide spectrum in the WCS band. Over the long term -- like others in the industry -- we look to the FCC to move expeditiously to identify, auction and clear new spectrum."
At the End of the Spectrum
As AT&T looks to make these investments, one looming question is where will it find more spectrum? Given that AT&T is not alone in making network upgrades, will there truly be enough spectrum to meet all the demand?
"AT&T and Verizon are the two largest competitors. They both need spectrum to continue to offer good quality to their wireless data customers going forward," said telecommunications analyst Jeff Kagan. "Smaller carriers also need spectrum for the same purpose. The problem is spectrum is in limited supply with no real answers coming."
One solution would be for AT&T to acquire a smaller player, but that is unlikely to happen given that regulators nixed its attempted acquisition of T-Mobile last year.
"It isn't for a lack of trying but they are pretty bracketed in," said Rob Enderle, principal analyst at the Enderle Group. "They're being as creative as they can be. The big difficulty is going to be finding spectrum they can use, but it isn't for lack of trying."
Of course, just because regulators blocked the T-Mobile buy doesn't mean they will block future acquisitions -- or more importantly, spectrum-sharing ventures such as Verizon's swap with cable providers.
"AT&T could have a degree of success on that front," said Jeffrey S. Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors. "The FCC and Justice Department gave clearance to Verizon and the cable companies as that didn't eliminate a national carrier."
AT&T -- or another major carrier -- could obtain more spectrum, but it would come with conditions, Silva told the E-Commerce Times.
"There are going to be a lot of moving parts to all this," he added. "The FCC has rules in place that will revisit spectrum holding and what a carrier can hold in a market. All of this will come into play, at least to a matter of degrees."
Changing Spectrum Landscape
AT&T's biggest challenge could lie in how regulators view competition in the mobile sector. They could set the bar higher for AT&T and Verizon.
"Going forward, it appears that the FCC is trying to create a regulatory requirement where T-Mobile and Sprint can become more competitive with AT&T and Verizon," said Silva. "That doesn't mean the door will slam shut in the faces of AT&T and Verizon, but the emphasis will be to create more meaningful spectrum competition. This is an issue with mixes of nuance here and there. It is anything but black and white."
AT&T may be able to make many small strikes, but it is unlikely to score loads of spectrum in one deal. Even if regulators look to boost T-Mobile and Sprint, the spectrum shortage is a problem all the carriers are going to face.
"This is a real and growing problem for AT&T and all wireless carriers. Everyone faces the same dilemma," Kagan told the E-Commerce Times.
"One answer is a service like Lightsquared, he suggested, which had a "good idea to solve much of this spectrum problem for many carriers, but ... poor spectrum to use."
Smaller Spectrum Pieces
Another solution might be for AT&T to look to acquire smaller players, avoiding the problem of taking a national carrier out of the mix. That would afford the company limited opportunities in select markets rather than a bigger piece of the national spectrum pie, however.
"Without an opportunity similar to T-Mobile, AT&T is faced with piecing together smaller deals and/or rebuilding its own infrastructure, both of which are likely to be costlier," said Charles King, principal analyst at Pund-IT. "At the same time, the company can probably pursue this track with fewer compromises."
This approach could also result in headaches for AT&T, though.
"If a large number of deals are concentrated in any specific geography, they could raise red flags," King explained.
Furthermore, "the industry is currently in the midst of one of its periodic consolidations, so the most attractive targets will likely have multiple bidders," he pointed out. "That will probably make overall investment costlier than a single large deal."