Wireless Operator Strategies

Wireless Operator Strategies provides both a deep and broad perspective of the operator market, combining granular operator-level and market-level data with ecosystem-wide understanding of wireless operator challenges and opportunities.

September 23, 2011 08:22 suerudd

We noted in the Blog of September 19th. that AT&T has begun to explore possible spectrum sales to other operators to gain approval of its acquisition of T-Mobile USA. Two operators were mentioned as AT&T’s first targets – Leap Wireless and MetroPCS.

Is it possible that AT&T could satisfy the Department of Justice (DoJ) by divesting spectrum to just these two companies? To answer this we looked at whether MetroPCS and Leap have current presence or operations in the right target ‘divestiture markets’ to expand cost effectively by adding spectrum and subscribers from AT&T. 

The amended DoJ complaint of September 16th 2011 states that the “…97 CMAs, identified in Appendix B, effectively represent….area(s)  in which the (merger with T-Mobile US) likely would substantially lessen competition for mobile wireless telecommunications services… each constitutes a relevant geographic market under Section 7 of the Clayton Act, 15 U.S.C. § 18.”

The 97 CMAs identified are those where the Herfindahl-Hirschman Index (HHI) is increased by more than 200 points by the AT&T T-Mobile Deal. HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 – Calculated as follows: 302 + 302 + 202 + 202 = 2,600.

Only three CMAs in the Top 100 are not identified by DoJ as an HHI ‘problem’ - Grand Rapids and Flint, MI and Shreveport, LA. Many on the DoJ list however are in the 200+ to 400 HHI increase range that could potentially be diminished significantly by the sale of Spectrum to the third or fourth largest player in each market. 

To see what role MetroPCS and Leap could play we then conducted an analysis of these 97 ‘problem’ Cellular Market Areas (CMAs). In AT&T’s April 21st.2011 filing it listed in Appendices B and C the competitors in all the cities where it operates. The chart below shows that in the 97 CMAs listed by DoJ either Leap or Metro PCS has a presence in all except two - Honolulu, HI and Johnson City-Kingsport-Bristol, TN-VA.

MetroPCS and Leap Wireless presence in the 97 problem CMAs

MetroPCS and Leap are present together in a few CMA’s which might create some competitive bidding in: Philadelphia, PA, Buffalo, Rochester, Syracuse and Albany-Schenectady-Troy NY, Toledo, OH-MI, Lansing-East Lansing and the Upper Peninsula MI, as well as Las Vegas, NV and Tacoma, WA

DoJ’s amended complaint also noted that in “more than half of the (97) CMAs…. AT&T and T-Mobile together would have a greater than 40 percent share. In at least 15 of the CMAs, including major metropolitan markets such as Dallas, Houston, Oklahoma City, Birmingham, Honolulu, and Seattle, the combined firm would have a greater than 50 percent share - i.e., more customers than all the other firms combined.” These are clearly the markets where DoJ is most concerned that the merged entity should have a lower share.

In the 15 markets shown in the chart below the DoJ Post-Merger share estimate is over 50%.

MetroPCS and Leap Presence in 14 of 15 ‘Problem’ markets

Either MetroPCS or Leap is in each of the 14 markets. The only exception is Honolulu, HI where neither is currently present.

AT&T needs to sell significant spectrum, and could potentially accomplish most of the required divestitures with sales to MetroPCS and Leap alone. Provided these two operators can raise sufficient financing – potentially even guaranteed by AT&T - this could catapult these two operators to National Status overnight.

AT&T and T-Mobile’s latest subscriber market shares – as well as those for Sprint Nextel, Verizon Wireless, MetroPCS and Leap Wireless - can be seen at ‘Wireless Operator Performance Benchmarking Q2 2011’.


September 19, 2011 21:23 suerudd

According to two sources speaking to Bloomberg “AT&T is approaching smaller rivals including MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) to sell spectrum and subscribers” and find a way to gain approval for its acquisition of T-Mobile USA. Sources also said that AT&T “has … reached out to CenturyLink Inc. (CTL), Dish Network Corp. (DISH) and Sprint Nextel Corp. (S) to gauge their interest in buying assets.”

This is the type of strong positive response we predicted in the recent Insight ‘AT&T and T-Mobile: Will there be a Spectrum Fire Sale to Escape Department of Justice and Close the Deal?’ and the earlier blog ‘AT&T Opponents Shift Focus to Challenge Excessive Spectrum Consolidation’. It is likely that AT&T is also reacting to the proposed six month Department of Justice (DoJ) pre-trial schedule and the co-filing by seven states who joined the DoJ lawsuit last week.

Proposed Department of Justice Schedule would go ‘down to the wire.

On September 16, 2011 Department of Justice filed a schedule proposing Monday, March 19 2012 for all steps to be completed in order to be ready for trial. AT&T is anxious to accelerate the process and suggests a completion date of Monday, January 16 2012. This is probably not because AT&T is anxious for a trial but because it still hopes to find a negotiated resolution with both DoJ and FCC as well as the states prior to its March 20, 2012 deadline for enforcing the deal with Deutsche Telekom.

The details of the two proposed Schedules are as follows.

AT&T and DoJ Proposed Schedules

The two parties will meet with US District Court Judge Ellen S. Huvelle on September 21, 2011 to finalize the schedule. AT&T’s proposed schedule is extremely tight for this extensive case.

And the other Parties are Piling on.

Also on September 16 Attorneys General in seven states filed as co-plaintiffs in the DoJ lawsuit. The seven states are led variously by Democrats and Republicans: California, Illinois, Massachusetts, Pennsylvania, Washington, New York, and Ohio. DoJ has had an excellent working relationship with several states in building its case and welcomed their participation.

On the same day Sprint’s attorneys filed motions in Federal Court asking the judge to integrate its case against AT&T in a coordinated proceeding as part of the DOJ complaint.

Summary

These opponents’ actions appear to have stimulated AT&T to initiate aggressive bargaining. AT&T and T-Mobile’s latest subscriber market shares – as well as those for Sprint Nextel, Verizon Wireless, MetroPCS and Leap Wireless - can be seen at ‘Wireless Operator Performance Benchmarking Q2 2011’. User shares are available on request to srudd@stratregyanalytics.com or Pkendall@strategyanalytics.com.