Skeptics Question AT&T's Logic In T-Mobile Deal

When AT&T officials announced plans to buy T-Mobile USA for $39 billion, they cited the so-called spectrum crunch as a big reason for the merger.

AT&T says it needs more wireless spectrum to avoid dropped calls and to satisfy its customers' growing hunger for data. Now government regulators are asking AT&T to back up those claims.

AT&T Cites Need For More Spectrum

AT&T officials like Ralph de la Vega argue the company needs to acquire T-Mobile's network to keep up with the fast-growing demand for data.

"Our data usage has grown 8,000 percent over four years; our own estimates say it's gonna grow eight to 10 times in the next five years," de la Vega said at a wireless conference earlier this year. "So it's in the public interest that we solve that pending spectrum exhaust issue in major cities by this combination."

It's an assertion federal regulators are likely to examine closely. Late in May, the Federal Communications Commission asked AT&T for more information about any "spectrum constraints" the company is facing.

Skeptics, including Sprint Vice President of Government Affairs Larry Krevor, think AT&T will have a hard time proving its claims. "AT&T has more spectrum, more licensed spectrum, than any other carrier in the country," Krevor says.

Critics: Merger Won't Ease Spectrum Crunch

Sprint, the nation's third-largest wireless carrier, has been lobbying hard against the merger. So have public interest advocates like Gigi Sohn at the Washington, D.C., nonprofit Public Knowledge. Sohn says AT&T is sitting on plenty of extra wireless spectrum — even in the biggest markets — that it's not currently using.

"They can take the $39 billion that they are using to buy T-Mobile, make full use of the spectrum they are warehousing," Sohn says. "AT&T has just continued to bring in the profits without spending the kind of money that would alleviate the spectrum crunch."

Sohn points out the merger won't actually create any new spectrum — though it would take away a low-cost competitor from AT&T. She concedes that the spectrum crunch is a looming problem and says that the federal government should act to free up more frequencies for wireless broadband.

Jerry Brito, who studies technology policy at George Mason University, says AT&T has to act sooner than later.

"So AT&T looking five years down the road, when they're not going to have enough spectrum to serve all their customers, they have to take action now." Brito says. "And the only way they can get their hands on spectrum quickly is through buying somebody who has some. That means buying another carrier."

Sprint Cites Reduced Competition

If the deal goes through, it would leave AT&T and archrival Verizon with an estimated 80 percent of all wireless business in the U.S. — and it would leave Sprint vulnerable to a takeover. Sprint's Krevor says that would be lousy for consumers.

"With that type of market power, that type of scale, consumers will undoubtedly see fewer choices, ultimately higher prices," Krevor says. "All of the benefits of the last 20 years in the competitive wireless world will be at risk."

The next round of comments on the merger is due at the FCC today. The Justice Department is conducting its own antitrust investigation.