If this smoking gun is real, it's one heck of a strike against the rich and powerful supporters of AT&T's $39 billion proposal to acquire T-Mobile.A partially-redacted letter allegedly sent from AT&T to the Federal Communications Commission suggests that the carrier is willing to pay $35 billion just to keep T-Mobile out of Sprint's hands.
Background about the AT&T/T-Mobile merger:
In February America's second-largest network, AT&T, announced plans to acquire T-Mobile, America's fourth-largest network for $39 billion. It argued that the combined entity would bring super-fast LTE broadband support to 97 percent of the country, rather than 80 percent without the merger. The merger would alleviate the spectrum crunch, meet America's voracious mobile broadband appetite, create jobs, and s[ir America's global competitiveness, AT&T said.
Shortly after, the FCC and the Department of Justice kicked off an investigation into AT&T's application. The FCC has since received thousands of opinions on the issue; large tech companies like Microsoft and Facebook have spoken out in favor, while small independent companies and consumerist groups have generally gone against. Verizon, which launched the first 4G LTE network last December, has kept deafeningly quiet, but Sprint CEO Dan Hesse has used rousing terms to explain why the merger would create a duopoly and spell the "end of the U.S. wireless industry."
The Damning Letter, sort of:
The letter, first reported last Friday by DSLReports—though without publishing the letter despite repeated requests from PC Mag staff—reveals the cost of bringing AT&T's LTE coverage from 80 to 97 percent: $3.8 billion.
So why is AT&T willing to pay $39 billion for T-Mobile?
"The reality appears to be that AT&T is giving Deutsche Telekom $39 billion primarily to reduce market competition," wrote DSLReports' Karl Bode. "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."
"We now know the truth: AT&T is willing to pay a $39 billion premium for one reason and one reason only — to kill off the competition," said Craig Aaron, CEO of Free Press, a media watchdog. "It would cost AT&T one-tenth of the merger's cost to expand its network than to buy up T-Mobile. Yet AT&T is willing to pay a 900-percent markup to take out a lower-priced competitor and make sure it can lock in and gouge consumers in the future."
The letter has since disappeared from the FCC's website, but Slashgear obtained one incriminating snippet:
"AT&T senior management concluded that unless AT&T could find a way to expand its LTE footprint on a significantly more cost-effective basis, an LTE deployment to 80 percent of the U.S. population was the most that could be justified," wrote AT&T counsel Richard Rosen, of Arnold & Porter.
"The company said its merger with T-Mobile would spread the cost of the LTE expansion over a larger revenue base, allowing it to "better absorb the increased capital investment and lower returns associated with deploying LTE to over 97 percent of the U.S. population."
As Slashgear's Rue Liu notes, this undermines the "cheaper broadband for all" basis of the merger that AT&T has been touting since day one.
Page 4 of AT&T's August 8 filing says that with the merger, "AT&T could better absorb the increased capital investment and lower returns associated with deploying LTE to over 97 percent of the U.S. population." Presumably these savings would trickle down to consumers.
But if AT&T is spending $39 billion rather than $3.8 billion to cover that extra 17 percent of the country, it's hard to see exactly how this will be cheaper for the consumer?
AT&T's response:
An AT&T spokesperson said the redacted letter was "consistent with AT&T's prior filings."
"While certain merger opponents refuse to acknowledge the clear benefits of AT&T's LTE buildout commitment, they have never operated a network or run a business and they offer nothing but baseless speculation that conveniently ignores the facts," wrote Margaret Boles, a spokeswoman for AT&T. "The bottom line is that without this merger, AT&T could not make this expanded LTE commitment. Federal regulators have before them the facts that demonstrate that this merger will unleash billions of dollars in badly needed investment, creating many thousands of well-paying jobs, both of which are vitally needed given our weakened economy."
For more, see A Sprint, T-Mobile Merger Is a Bad Idea, But Here's How It Could Work and PCMag mobile analyst Sascha Segan's letter to the FCC about the pending deal.
Source:http://www.pcmag.com/article2/0,2817,2391065,00.asp?kc=PCRSS05039TX1K0000762
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