Analysis: The Free Press's latest charges against AT&T/T-Mobile lack evidence

AT&T has been doing damage control since a document containing confidential information about 4G network construction costs was accidentally uploaded to an FCC web site. Although the document was promptly removed so that the confidential information could be redacted, telecom online news site DSL Reports got hold of the document with the confidential information and has penned several blog posts arguing that the data “undermines AT&T’s primary justification for the massive deal.” AT&T has pledged to deploy LTE to 97% of the U.S. population if the merger is approved, arguing that only then could it justify that investment.

Consumer group The Free Press has used the confidential information as the basis for a letter to certain members of Congress urging them to review the data and not support the AT&T-T-Mobile merger.

The letter with the confidential data reviewed information shared at a meeting between AT&T’s law firm and the FCC. According to the letter, AT&T absent the merger was planning to deploy 4G to 80% of the U.S. population. To reach the additional 17% would cost $3.8 billion—nearly twice as much per covered person in capital expenditures, AT&T noted.

Both DSL Reports and The Free Press have seized on the $3.8 billion data point, contrasting it with the $39 billion AT&T plans to spend to acquire T-Mobile. “The company could meet its rural deployment promise for just $3.8 billion—one-tenth of the cost of the T-Mobile acquisition,” wrote The Free Press in its letter to Congress members.

AT&T told several news outlets including the Washington Post http://www.washingtonpost.com/blogs/post-tech/post/atandt-t-mobile-merger-faces-new-criticism-from-free-press/2011/08/19/gIQANEjRQJ_blog.html?wpisrc=nl_tech that the confidential information contained in the letter is consistent with prior AT&T filings. The carrier reiterated its position that it would not be able to deliver 4G to the additional areas without the merger.

The crux of the dispute
The crux of the dispute seems to be how one defines phrases such as “not possible without the merger.” In a non-confidential section of the controversial letter, AT&T explains what it means when it uses wording of that kind.

Benefits of the merger, the letter argues, would include “incremental reductions in cost due to the addition of T-Mobile USA resources; greater scale economies, such as higher volume discounts on handsets and equipment; a larger customer base; and the expectation of a higher take-rate for AT&T’s LTE service.” In addition, the letter argues, “the transaction will enable AT&T to re-purpose its existing capital budget allocated to spectrum acquisition to be allocated for other uses.”

The authors also note that “overall, the scale and scope of the larger combined wireless business will permit the additional capital investment to be spread over a larger revenue base than would be the case absent the merger.”
DSL Reports and The Free Press are taking a narrower view that only considers construction costs and not the impact of the merger on the overall business case.

How real is the 80% number?
Some people have questioned AT&T’s claim that without the T-Mobile merger it could only justify deploying 4G to 80% of the population—and considering how widely the company has deployed previous generations of wireless technology, that would seem to be a valid concern and an issue that those approving or disapproving the merger should scrutinize closely.

But that scrutiny needs to go beyond simply comparing the $3.8 billion number with the $39 billion number and saying that $3.8 billion is a lot less than $39 billion.