FCC pans for more info on why AT&T needs T-Mobile

The FCC may be questioning AT&T’s central premise for acquiring T-Mobile. On Wednesday it sent a letter to AT&T’s lawyers asking for information about how the combination of the two carriers’ assets would create a business case for the large-scale deployment of long-term evolution (LTE).

AT&T claims that with T-Mobile USA under its wing, it can expand its proposed LTE deployment from 80% of the U.S. population (i.e. urban areas) to 97% of the population, exponentially increasing geographical coverage and bringing small and rural markets into the mobile broadband fold. For AT&T it isn’t a matter of being unable to reach to 97% of population on its own. It claims that it just doesn’t have a business case for doing so. Combining resources and subscribers with T-Mobile would create that business case, AT&T maintains.

Now the FCC wants AT&T to back up that argument, and it apparently isn’t satisfied with AT&T’s earlier insistence that it has done a detailed analysis of that business case. From the letter:
“Although AT&T has stated that it has not quantified the transaction-related changes in the business case for extending its LTE footprint, we ask that you supplement your filing with any documents or analyses explaining why the changes in cost, revenue, and/or profitability are likely to be large enough to change the overall business case for the additional deployment.”
The letter also requests more information on AT&T’s LTE plans, but what it pertains to remains a mystery since that part of the request is for AT&T’s eyes only. Unlike the letters AT&T accidentally posted in their entirety earlier this month, the FCC letter was posted with redactions.

Before AT&T and the FCC could pull its un-redacted documents, several media outlets managed to get the privy details of the financial information AT&T filed with the FCC—and carriers and public interest groups railed against what they found. AT&T's cost of expanding its LTE network to 97% of the population would amount to $3.8 billion, which is about a tenth of what it’s paying for T-Mobile (Unfiltered: AT&T can’t build LTE nationwide without T-Mobile, or it just won’t?).

The revelation sprouted a bevy of criticism, but to be fair to AT&T, comparing the cost of a network expansion to the cost of an acquisition isn’t exactly apples to apples. AT&T gets millions of customers, extensive GSM and high-speed packet access plus (HSPA+) networks (though it would shut the latter down) and most important nationwide spectrum assets, which it could use to build a very robust LTE network. Also, $3.8 billion is a considerable sum if you consider that it would only add 52 million subscribers to its coverage footprint. The further an operator builds beyond urban markets, the less return on investment it receives.

But there is still plainly a profitable a business case for going rural. Verizon Wireless built its 3G network to more than 95% of the population and plans to match that footprint with LTE coverage. The FCC now wants to explore AT&T’s business calculus a little more deeply. Though the FCC has offered no insight on how it would it weigh any of those of the business factors, it may be trying to discern whether AT&T actually has no feasible business case for launching LTE in rural markets on its lonesome or if it’s merely seeking to maximize its returns from those markets by teaming up with T-Mobile.