EE announced upgrades to its LTE network today, doubling bandwidth for its 4G services starting in the next couple of weeks.  It will be allocating 2x20MHz of its 1800MHz spectrum to LTE services in 10 cities by the Summer, extending that to 98% of the UK population by the end of 2012. This will see its top speeds increase to 130Mbps and average speeds increase from the current 8-12Mbps to over 20Mbps.

The roll-out will be phased as EE matches the extra radio capacity with backhaul upgrades needed at some sites. No consideration needs to be made for phasing upgrades in order to protect GSM services in the 1800MHz band, with the remaining 2x25MHz more than sufficient to deliver high-quality voice services into the remaining 2G customer base.

EE is also planning field trials of LTE-Advanced and VoLTE before the end of 2013, with LTE-A seeming to be the greater driver at the moment: its current CSFB-based voice services are performing very well and the operator would like to see much greater VoLTE device availability before making a commitment there.

For the first time, EE has also discussed customer targets for LTE, aiming for 1 million postpaid customers by the end of 2013. It released two useful statistics about current subscriber growth:

• 1 in 4 new consumer and SME customers are picking LTE;
• 30-40% of Orange and T-Mobile customers with 4G phones in areas where EE has deployed 4G are upgrading to 4G (for an extra £5/month) when this offer is made to them by the customer care teams.

We view 1 million as a very achievable customer target. In fact, EE could probably go a lot higher. It had 2.7 million postpaid gross additions in 2012, so only a modest increase in the current 25% LTE share would see it hit 1 million this year. The key here is LTE needs to fit in with other targets, in particular its aim to increase EBITDA margins from 21% in 2012 to 25% by 2014 and “buying” LTE growth through aggressive device subsidies or removing the service price premium is not going to help there.

Strategy Analytics' Wireless Operator Strategies team will be releasing a more detailed competitive assessment of this announcement for clients later today.

Merging T-Mobile USA and MetroPCS makes sense on many fronts. For stakeholders, René Obermann, Chief Executive Officer of Deutsche Telekom, explained this merger “feels like unboxing a new smartphone to you” – discovering all the benefits. Strategy Analytics looks at some of the potential benefits—starting with spectrum as the main driver:

Spectrum:

Both companies needed additional spectrum for stronger LTE deployments, and their contiguous AWS spectrum makes a good fit. As MetroPCS chairman stated in a call to go over the merger details, this deal allows for “minimum cost, time, and risk associated with acquiring spectrum”. For T-Mobile, they also get the benefit of PCS spectrum in some of their most spectrum constrained markets. The combined spectrum position, which will allow for 20x20 MHz LTE deployments in many markets, was noted by company leaders as “fundamental to deliver enhanced customer experience.”

Seamless Migration and Network Evolution, not Disaster of Combining Disparate Networks:

Both companies were very clear that they are not planning to “smash together two networks”. The companies will focus on migrating MetroPCS customers to T-Mobile’s HSPA+ network, which has sufficient capacity, in order to refarm MetroPCS spectrum, with a target to close the MetroPCS network by the end of 2015. With T-Mobile network upgrades already underway for its LTE launch in 2013, the timing is also good for migrating MetroPCS subscribers to TMO-US LTE as it is launched.

With 60-65% of MetroPCS customers upgrading their handsets each year, the new company will use this rapid upgrade cycle to their benefit to have customer-driven transition. They anticipate heavy users will self-migrate first, freeing up spectrum for refarming faster, and expect some need for incentives in the last 12 months to encourage remaining customers to upgrade, but most of upgrades will be driven by customers.

Of the US $6-7 billion in synergies identified, 5-6 billion will be in the network - decommissioning of redundant sites as refarming occurs is big part of that savings.

Personally, I agree with them calling Neville Ray, CTO of TMO-US, a “rock star” – he has done a lot of work on refarming TMO 1900 spectrum for HSPA+  to target iPhone owners, planning for LTE upgrades with newest technology innovtions, and did a superb job of tackling backhaul upgrades to support 4G RAN evolution.

It will be interesting to see how the combined entity leads network innovation to support new services, as each had key strengths:

• TMO-US: strengths in refarming and preparing for industry leading LTE migration based on release 10 and using remote radio heads and strong fiber backhaul
• MetroPCS: network innovation focused on maximizing minimum spectrum with DAS, early use of six sectors per cell site,  and world leading VoLTE launch to migrate voice to LTE to support spectrum refarming

With less urgent need to migrate to VoLTE to move voice to LTE to be able to refarm PCS spectrum (a main driver behind MetroPCS early VoLTE launch), the new company should be able to focus  on how to use VoLTE along with RCS and IMS to create service value propositions,  particularly for SME focus of TMO-US and the high-tier users at MetroPCS—who have been  used to having extra content/services bundled into their unlimited.

Marketing and Target Segments:

For TMO- US, the merger with smaller MetroPCS has several main benefits in terms of market positioning:

• closes half the gap in subscriber base to number 3 operator Sprint, by going from TMO’s current 33M subs to 42M combined subs for the new company
• more importantly, should go a long way to support the rebuilding of T-Mobile’s brand equity in the US after its failed merger with AT&T
• should help to stem some of its customer losses to AYCE offerings
• prepares it for stronger LTE play
• positions both companies to continue to drive unlimited as a key differentiator (and target Sprint head-on)

DT and TMO suggest looking at contract, no-contract as a continuum of offerings and highlighted that the new company will have wider range of offerings including SIM-only  for bring-your-own-device and  handset financing plans (see the TMO blog)

For MetroPCS, the merger will stem churn based on users moving outside of their network areas. It will also will extend the value proposition of MetroPCS AYCE plans to more people—a benefit  TMO identified as an “upside” to the merger, stating that probably only 25% of the US has benefitted from MetroPCS plan innovation and they will be able to provide wider distribution.

As a combined company, the ability to position as an aggressive challenger is one of the main competitive benefits of the proposed merger. As company leadership noted, “we haven’t fired all our weapons yet…we will be a very innovative, edgy marketing machine, especially as our [LTE] networks come up.”

Impact on the Industry:

For vendors: Ericsson should be in a relatively good position, as a main vendor to both companies as LTE deployment work continues and as a main vendor behind VoLTE rollout at MetroPCS. NSN could benefit the most, as TMO was its first LTE win in US and it has a strong play with Liquid Net and refarming support.  Most impacted could be microwave vendors, as MetroPCS was playing catch-up with backhaul upgrades and had planned to focus on microwave.

For Other Carriers: Sprint could find itself the most affected, as it has been focusing on its unlimited LTE play. AT&T and Verizon Wireless may find they now have a stronger competitor in the SME and M2M space, particularly as TMO has its HSPA+ network to back up its leading-edge release 10 LTE deployment, and may also find it harder to grow in the prepaid arena. Smaller carriers like Leap’s Cricket service and US Cellular may also find themselves struggling more to retain customers with a stronger value player in town. MVNOs in the US may find they have another network that looks more appealing for wholesale, but could also find it harder to carve out a niche as an AYCE no contract play.

-Susan Welsh de Grimaldo, Director, Mobile Broadband Opportunities

The growing availability of LTE smartphones has delivered a significant boost to the technology over the last 6 months and Strategy Analytics has upgraded its forecasts to one billion LTE connections by early 2017. The US, South Korea and Japan are leading the way in 2012, with greater global scale achieved in 2013. By 2017, LTE will generate over one -third of mobile service revenues. Strategy Analytics' report "Worldwide Cellular User Forecast: 2012-2017" provides global forecasts of subscription, technology and revenues, with detail for 82 individual countries.

There will be over 6.6 billion cellular subscriptions worldwide by the end of 2012.

The market continues to slow as a more regions approach levels of saturation. Over 80% of subscriptions added between 2012 and 2017, will come from Asia-Pacific, the Middle East and Africa.  

Cellular subscriptions are outpacing unique users by 48%

Worldwide cellular service revenues will increase by 4% in 2012, a slight decline on the 5% growth witnessed in 2011.

Cellular Subscriptions

(M)                                  2011       2012       2017

W Europe                         556.7      576.0     624.6

CE Europe                        537.6      556.3      583.9

N America                        363.2      386.5      493.2

CL America                      642.3      697.1      841.8

Asia-Pacific                     3019.4    3357.7    4453.4

M East & Africa                 920.3     1026.8    1462.6

Additional questions answered in this forecast include:

How large will the subscription/user gap be in 2013 and 2017?

What share of users and revenue will be from business in 2012? 2017?

How will usage minutes grow from its 2011 level through 2017?

How significant will TD-LTE be in the next five years?

How will users, subscriptions, postpaid vs prepaid, service revenues, churn rates, traffic and ARPU vary across the 82 countries covered?

Client Reading

We posted on Monday about some LTE network launches which were announced at MWC, or in the week running up to the show. These were mainly FDD-based network plans. A few more network plans have emerged during the course of the week, with a welcome showing for TDD-based deployments.

Momentum continues to grow for the use of unpaired spectrum for LTE services, with a real mixed bag of countries having commercial networks - Brazil, Japan, Poland and Saudi Arabia are all up and running. In many cases these are examples of operators who do not have sufficient clear paired spectrum to launch FDD-based LTE networks, but own unpaired spectrum. The US will join the commercial TD-LTE market in 2012 with Clearwire's planned deployments, though China and India are the big markets to watch.

At MWC this week we heard from:

• China Mobile, which plans to have 20,000 TD-LTE base stations in operation on test systems by the end of this year and 200,000 base stations for a commercial service by the end of next year. It's TDD-based 3G services (using TD-SCDMA) have left it isolated globally, so the operator is keen to be one of the early volume players in TD-LTE. The operator also confirmed plans to launch dual-mode FDD/TDD LTE services in Hong Kong following its acquisition of 2.3 GHz spectrum there last month;
• UK Broadband, which switched on its TD-LTE network in London on Wednesday, with commercial services planned from May. The network uses Huawei kit and operates in the 3.5-3.6 GHz spectrum bands. UKBB holds 124 MHz of spectrum and will ultimately deliver TD-LTE across 6x20 MHz channels, perfectly highlighting that it is not just the "traditional" mobile operators who have cornered the market for usable spectrum;
• Bharti Airtel, which announced a contract with Nokia Siemens networks to build and manage its TD-LTE network in Maharahstra. The 2.3 GHz network will launch before the end of this year.

An honorable mention should also go to ZTE, who has been highlighting its TD-LTE achievements. It unveiled its multi-mode TD-LTE/WiFi pico base station and ran a live connection to 3 Sweden's dual-mode FDD/TDD LTE network in Stocholm. With a number of chipset vendors showcasing dual-mode LTE chipsets at the show, TD-LTE network opportunities are looking very positive.

This year’s Mobile World Congress looks likely to be a useful platform for mobile operators to provide updates on their LTE network deployment plans. There have been a couple of announcements from the show floor so far, though some operators put details out last week to avoid the noise. We are expecting LTE launch plans to emerge throughout the week, but here is a recap of what has come over the last 10 days:

• Deutsche Telekom confirmed an LTE launch by T-Mobile USA in 2013, following the failed AT&T-TMO merger attempt at the end of last year. It is modernizing 37,000 cell sites in 2012/13 as part of this process and through a combination of spectrum refarming and the spectrum dividend it received from AT&T, it will be able to launch with 20 MHz of LTE spectrum (AWS band) in markets covering half of its current HSPA POPs.
• eAccess will launch an integrated UMTS/LTE 1.7 GHz network in Japan next month, supplied by Ericsson and Huawei.
• Everything Everywhere hopes to launch LTE services in the UK by the end of 2012, providing it can get regulatory approval to use its 1800 MHz spectrum. The UK is late to auction 800 MHz and 2.6 GHz spectrum, with UK Broadband also looking to step into the void as it trials TD-LTE at 3.5 GHz.
• Telefonica unveiled its “live test” LTE network (pdf) covering 5 square km of central Barcelona as part of its domestic LTE build. Using Alcatel-Lucent’s lightRadio technology, the companies are positioning this as the world’s 'smartest' 4G network. The network consists of conventional base stations and smaller metro cells, all operating in the same 2.6 GHz frequency band with no interference. It supports speeds up to 100 Mbps downlink and 40-60 Mbps uplink with the partners suggesting each cell can support 30 simultaneous users at 30 Mbps.
• Movicel will launch an LTE network in Angola by the end of May 2012. The network, supplied by Huawei, is the first 1800 MHz FDD LTE network in Africa.

Watch this space for an update later in the week on further launch announcements.

OnStar outlined the latest fruits of its collaboration with Verizon Wireless at CES this week. It’s showcasing a Chevrolet Volt research vehicle connected via VZW’s 4G LTE network to deliver a range of content and enhanced communications services – information services, streaming of multimedia content, video-calling, etc. VZW has been promoting LTE to the automotive industry as a way to future-proof their connectivity strategy and support tomorrow's high bandwidth use cases, and this message seems to be hitting home.

The collaboration makes sense on a number of levels:

Firstly, LTE in general can offer a robust (and fast) enough connection to deliver these services in combination. Watching a YouTube video on its own is not a problem for many networks, but simultaneous sessions across the front and rear seat (video content and calling, online gaming, browsing, etc.) really do need to look at LTE as the starting point – a must-have rather than a nice-to-have.

Secondly, VZW’s network is built on 700MHz spectrum (as a starting point) so offers good geographical coverage. Mobile broadband networks have generally been about delivering massive capacity into urban environments. I visited Softbank’s new LTE network in Tokyo last week – built in 2.5GHz spectrum the cell sites were 50-200 meters apart in order to saturate the streets with high-speed signals, delivering 40-50Mbps to multiple devices in our demo bus. But that network won't extend beyond city limits and the automotive industry needs a high bandwidth network which can offer much wider coverage - the 700MHz LTE network is the only real option today.

Finally, LTE is a reality today in the US market and is here to stay. The US is significantly ahead of the rest of the world in building mobile broadband networks in the lower spectrum bands offering the coverage the automotive industry requires. VZW’s network now covers more than 200 million people in 190 markets (ok, I know I’ve just said there is more to this than urban coverage) and will cover its entire 3G footprint with 4G by the end of 2013. So the US automotive industry, more than any other, can develop LTE services now which will still be supported come the end of their product lifecycles.

The next challenge for the automotive industry will be data pricing. Bundling a year's service with new vehicles could get very expensive (for the OEM) very quickly with these multimedia applications, so new pricing models will be key. Our own survey work has shown that consumers would prefer a single shared data plan to connect their array of 3G/4G-enabled devices, rather than one plan per device. That is still very much a work in progress in the US market, but a necessary requirement if we are going to see the automotive and CE industries enjoy the full benefits of LTE.

On December19^th. AT&T - discouraged by massive DoJ and FCC opposition - ended its bid to add capacity with the acquisition of T-Mobile USA. This leaves AT&T hunting for alternative ways to acquire sufficient spectrum, even though it was finally able to complete the purchase of Qualcomm’s 700MHz Spectrum on December 27^th.

But where does this leave T-Mobile USA?

On December 20^th. Deutsche Telekom (DT) CEO Rene Obermann speaking to his own corporate blogger suggested that T-Mobile USA would need to move to LTE technology eventually; and would also require additional spectrum. He made clear however, that the $3 Billion cash settlement from AT&T would be used initially to reduce DT corporate debt not to further enhance T-Mobile USA’s network that was just upgraded in 2011 to dual carrier HSPA+ and is currently providing sufficient capacity for current customers.

Rumors of T-Mobile USA’s difficulties are exaggerated…

As of end of third quarter of 2011 T-Mobile USA served 33.7 million customers only slightly down from 33.8 million at the end of third quarter 2010. 10.1 million of those customers are now using 3G/4G smartphones up 40% from a year earlier. OIBDA margin was 31% in the third quarter of 2011, up from 28% in the third quarter of 2010 due largely to lower losses from equipment subsidies that were reduced by the launch of T-Mobile’s unlimited Value plans. These Value plans allow customers to subscribe to new services without an upfront payment for a bundled handset. These plans have reduced ‘costs per gross add’ and lowered the cost of subscriber retention.

Overall, T-Mobile USA had a slim but maintainable third quarter net income of $332 million on service revenues of $4.67 billion.

This year therefore, T-Mobile survived disruptions to its retail channels including the discontinued retail partnership with Radio Shack; handled the uncertainty of the AT&T acquisition; and held Contract Customer churn down to 2.4%, although Prepaid churn jumped to 7.2% from 6.6% between the second and third quarters.

T-Mobile is maintaining its customer base and making money.

Challenge is Migration to LTE

The challenge for T-Mobile USA is to fund future growth to compete with the three other large players in the US market – AT&T, Verizon and Sprint - as well as ‘no contract’ low cost prepaid regional operators - Leap Wireless, MetroPCS and US Cellular - all of whom are migrating to LTE.

In November T-Mobile announced that its nationwide ‘4G’ (HSPA+ at 21Mbps) network now covered 208 markets across the US reaching more than 200 million POPs.

But how will T-Mobile migrate this network and its GSM PCS customers to LTE without AT&T?

Possible Migration Path to LTE

We have reported that migration to at least a Hybrid HSPA+/LTE network is key to long term profitability. TMoNews the unofficial blog of T-Mobile USA recently described a possible low cost path for T-Mobile’s LTE migration. See: ‘Editorial: Why T-Mobile Should And Will Deploy LTE (The Technical Edition)’

“At this point in time, T-Mobile is just now refarming PCS spectrum. In a majority of the markets where T-Mobile has both PCS and AWS spectrum with no AWS used, it is quite likely that they will deploy HSPA+ only on PCS because most of the remaining markets only have 10MHz of AWS and 30MHz or more of PCS. AWS will likely be reserved for LTE in these areas.”

“In areas where they’ve got plenty of AWS spectrum and they’re using it for HSPA+, they’ll dedicate about 10MHz of PCS to GSM and 10MHz to HSPA+. If they have 20MHz of PCS or less in a market with lots of AWS, there will be no deployment of HSPA+ on the band, but there will be scaling back of GSM to 10MHz to prepare for LTE. T-Mobile will deploy LTE.”

 “T-Mobile USA has been preparing for LTE on their core network and backend infrastructure for over two years now. … T-Mobile USA has deployed all the necessary components to run IMS on their core network and (has) made a new Wi-Fi Calling solution that uses it. As far as we know, they are the first in the world to commercially deploy IMS for voice, SMS, MMS, and other circuit-switched services. It would be trivial for T-Mobile to change the client software to make it run over LTE or HSPA+. By preparing all the core network and backend infrastructure for LTE this far ahead, their nationwide LTE deployment costs will much lower.” 

Financing the Path to LTE

The key question is whether T-Mobile USA can finance this migration without bringing in new investors. Even if the migration could be done for as little as $6 Billion, additional spectrum will eventually be needed. DT is unlikely to provide that and is being very cautious because of concerns about European market growth and the financial risk of its 40% share of Greek telecom group OTE. DT is also planning to expand in several areas of its European business rather than in the US. 

Nor is DISH Network, who has offered to Partner With T-Mobile likely to be able to finance a T-Mobile upgrade as it focuses on its own rollout.

Meanwhile T-Mobile USA is pursuing business as usual adding ‘no contract’ plans to keep prepaid customers; and offering aggressively priced deals for the Holidays.

And Oh Yes - directly targeting AT&T and iphone4 in its Ads with its attractive T-Mobile girl – Carly Foulkes

It has been a busy few weeks for AT&T.

While many are saying the AT&T T-Mobile “deal is dead”, and AT&T has clearly irritated the FCC staff, AT&T is now finally taking a much more conciliatory attitude.

Our recent report ‘It's all about Spectrum - AT&T T-Mobile Bandwidth matched by Verizon and Sprint’ describes how Verizon and Sprint are both buying control of significant extra spectrum. However, the Verizon AWS spectrum purchase from SpectrumCo. requires FCC approval; and once it approves that deal the FCC will find it difficult to argue that a merged AT&T T-Mobile would have an excessively ‘dominant spectrum position’.

Once the FCC allows Verizon’s spectrum acquisition - and after Sprint’s takes ‘virtual control’ of Clearwire’s spectrum - AT&T will have a very strong case that its ability to compete will be diminished if it is not allowed to acquire T-Mobile.

A complete reversal of the original case.

AT&T is working hard to complete the deal and is thought to have two teams pursuing two parallel options.

Option 1. AT&T is negotiating to divest sufficient spectrum and assets to satisfy the regulators. See:

AT&T and T-Mobile: Will there be a Spectrum Fire Sale to Escape Department of Justice and Close the Deal?

• ·“The company is considering an offer to divest a significantly larger portion of assets than it had initially expected, said the person, who declined to be identified because the plan isn’t public. Though the exact size of the disposals hasn’t been determined, they could be as much as 40 percent of T-Mobile USA’s assets, the person said.”
• “AT&T has been in discussions with MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) to sell spectrum and customers as a way of propping up competition in the absence of T-Mobile.”
• “AT&T has been secretly working on an audacious 11th-hour deal to salvage the transaction: AT&T is knee-deep in talks with Leap Wireless, a second-tier but growing wireless player, to sell it a big piece of T-Mobile’s customer accounts and some of its wireless spectrum, according to people involved in the negotiations. AT&T hopes such a deal would placate the Justice Department enough for it to drop its opposition to AT&T’s acquisition of T-Mobile, these people said, or at least to strengthen AT&T’s hand if it goes to trial. The deal would make Leap the fourth-largest wireless carrier in the nation, but it would allow AT&T to retain enough of T-Mobile’s valuable wireless spectrum, which it says it badly needs to provide the kind of next-generation service that its customers expect.”
  
  

See Blog: Could AT&T Settlement Catapult Leap and MetroPCS to Top National Status?

Option 2. AT&T is still preparing to fight in court.

• Verizon’s recent actions may have significantly helped AT&T’s case.
• If AT&T makes a new proposal on January 12^th DoJ may demand that AT&T refile that proposal with FCC before it goes to trial. [Note: AT&T correctly noted that it is normal to resolve DoJ issues before getting FCC approval. We also noted that in April in: ‘AT&T T-Mobile Acquisition: How long will it take to close?’]

AT&T really…really….really… wants the T-Mobile spectrum for capacity growth and is not likely to give up easily.

But, if AT&T loses at trial there are two other likely options:

Option A. “A network-sharing deal between AT&T and T-Mobile could be established, but this would probably not allow AT&T to reuse T-Mobile's AWS spectrum for LTE. A major blow for AT&T.

Option B. Deutsche Telekom is still anxious to complete the sale as it has major European investment plans for the $39 Billion. It might decide to spin out T-Mobile to a Private Equity partnership pending a later sale to a new player like. Google. [Several options for T-Mobile’s future are summarized in AT&T and T-Mobile: Will there be a Spectrum Fire Sale to Escape Department of Justice and Close the Deal?

We should know by January 12^th. 2012, if AT&T can come back with a modified proposal that may be acceptable to DoJ, and then the FCC.

Rethinking US Market Structure and Competition in an IP world.

In a recent policy paper Strategy Analytics suggested that the nature of US Mobile Broadband competition has changed and that ‘All-IP’ networks dramatically change both ‘economies of scope and scale’ and the ‘Relevant Geographic Areas’ that determine Competitive Concentration for Anti-Trust purposes.

See: Policy Insight: New Mobile Industry Structure and 'All-IP' Services change AT&T T-Mobile's 'Spectrum Dominance' and Create new 'Challengers'

There may not however, be sufficient time in the current AT&T case to make such a profound change to the traditional 1980s/90s market analysis. Nor to establish rules for the new digital ‘All-IP’ Mobile Broadband Industry.

On April 27^th.several competing operators - Cincinnati Bell Wireless, MetroPCS, NTELOS, the Rural Cellular Association (RCA), the Rural Telecommunications Group, and Sprint Nextel Corporation all requested the FCC to consolidate into a single proceeding the upcoming review of the T-Mobile acquisition (11-65) and the earlier Qualcomm MediaFLO Spectrum acquisition filing (11-18).

“In the proposed Qualcomm transaction, AT&T seeks to acquire Qualcomm's six Lower 700 MHz D Block (6 MHz) licenses, which collectively have a nationwide footprint, and five Lower 700 MHz E Block (6 MHz) licenses in five large markets. The T-Mobile transaction includes the acquisition of an additional 50 MHz on average in the same geographic areas covered by the proposed Qualcomm transaction. Obviously, with such an overlap, these two transactions should be examined together, rather than separately.”

In Appendix B. Competitor Chart of AT&T’s April 21^st. Filing there are 567 pages of Competitor Charts for 700 MHz, Cellular, and SMR Licensees that show the Qualcomm D & E Block Spectrum alongside the AT&T Consolidated Spectrum. A Selected example for San Francisco, San Mateo and Washington DC is shown below.

As seen in the above example AT&T’s own Appendix B strongly supports the case for examining the joint impact of the two acquisitions.
AT&T may now regret not having waited to settle the Qualcomm acquisition before seeking to acquire T-Mobile. [Note: Appendix A shows the Spectrum to be consolidated between AT&T and T-Mobile.]

So now the FCC may need to review the competitive and market impact of AT&T's aggregation of spectrum in both proposed transactions on nationwide mobile telephony and broadband services.

AT&T may have trouble establishing that it really needs all the additional Spectrum.

RCA President and CEO Steven K. Berry has called AT&T’s acquisitions a ‘spectrum grab’ and said, “It is clear that AT&T is doing everything possible to gain market dominance by making not one but two major spectrum grabs in the proposed Qualcomm and T-Mobile transactions.”

AT&T is now getting increasingly unfavorable publicity – as Broadband DSL Reports notes “Press (Are) Not Buying AT&T Spectrum Claims”. The chart below is being used in multiple publications to exemplify AT&T’s overreach. It is easy visually to add together either the green 3G columns or the blue 4G columns to estimate the consolidated spectrum of AT&T and T-Mobile. It is apparent they both far outstrip Verizon.

Delay may cause problems for AT&T unless it divests properties rapidly.

The clock is running on the AT&T T-Mobile merger since the FCC established the Pleading Cycle for the AT&T T-Mobile Acquisition (WT Docket 11-65) as follows:

Filings                        Due

Petitions To Deny     May 31, 201

Oppositions                June 10, 2011

Replies                        June 20, 2011

 Despite this aggressive FCC timetable, it is increasingly likely that extensive negotiations will be required – both nationally and state by state. AT&T will probably have to divest sufficient properties to ensure competition in each market on a case by case basis to create even stronger competitors than shown on its website.

The agreement with Deutsche Telekom (DT) however, states that AT&T does not have to agree to divestitures and other regulatory conditions that would have an adverse effect greater than USD 7.8 Billion; only half of subscriber or spectrum sales value is counted towards that sum. AT&T has stated that it is prepared to divest up to 40 percent of the number of T-Mobile subscribers or approximately 13.149 million subscribers - based on the stated value of USD 578 per subscriber. But the likely buyers are AT&Ts competitors who have no incentive to move quickly or to pay full price .

But AT&T’s acquisition agreement with DT for T-Mobile USA has a ‘drop dead’ date of March 20, 2012 after which either AT&T or DT can chose to terminate the deal.

If the deal terminates because of a failure to obtain regulatory clearance there is a provision that A&T must pay DT up to USD3 Billion in cash; enter into a roaming agreement; and “transfer to Deutsche Telekom certain wireless AWS spectrum that [AT&T] does not need for its initial LTE roll-out.”

The growing opposition to AT&T may well push the deal to the fall of 2012 as we predicted in an earlier Insight ’AT&T T-Mobile Acquisition: How long will it take to close?’

Skype today launched Video for iPhone, iPod Touch and iPads. This new version of the Skype service application software lets users make and receive video calls from iPhones, iPod touch and iPads, with instant messaging for other Skype users, over both Wi-Fi and AT&T's 3G network.

Was it a test for this iPhone video application that brought down Skype's Video Network Last week? The story going around last week was that a new release for Apple software - possibly the Skype iPhone Video application announced today - had a problem and triggered the Skype server failure when installed first on one and then several Skype 'supernodes'.

But don't blame the Apple software application.

Skype's supernodes act as both offline message (IM/SMS) relays and as Skype's Chief Information Officer noted yesterday "a directory, supporting other Skype clients, helping to establish connections between them and creating local clusters typically of several hundred peer nodes per each supernode."

The initial crashes brought down 25% to 30% of the Skype supernode servers - just before the normal daily peak. This in turn led to traffic overload that created extensive delays in the support servers responsible for offline instant messaging. This resulted in long response delays to some to Skype Windows clients and 20% of these had an old software bug that then caused them to crash.

The official Skype story was released yesterday by Lars Rabbe, Skype's Chief Information Officer, who describes the "snowball" effect that blocked most Skype users for 24 hours on 22^nd.- 23^rd. December 2010.

"50% of all Skype users globally were running (an older) 5.0.0.152 version of Skype for Windows, and the supernode crashes caused approximately 40% of those clients to fail. These ... included 25–30% of the publicly available 'supernodes', (that) also failed as a result of this problem."

"The failure of 25–30% of supernodes in the P2P network resulted in .. massively increased... load as (supernodes) reconnected to the peer-to-peer cloud... just before our usual daily peak-hour (1000 PST/1800 GMT)". As users tried to reconnect to the system, they generated "traffic to the supernodes that was about 100 times what would normally be expected at that time of day" and overwhelmed the remaining supernodes bringing the whole system to a standstill.

It is interesting that some sources focus blame on Microsoft, not just Skype's network, servers and software, but maybe the problem is more profound.

P2P Server Architecture.

Serious questions need to be asked about a network service architecture that allows:

• Application software to crash what should be 'carrier class' servers performing network functions
• P2P software that causes both network and user device based clients to crash as a result of network overload problems
• Network server problems that spread automatically across a large number of supernodes

Network servers need to be especially resilient and intelligent in how they 'fail-over' in a distributed networking environment; but a robust Service Architecture is always a pre-requisite.

Let other P2P and 'Cloud' service providers beware.

On a positive note Skype brought in massive extra capacity to stabilize the network and was also able to restore Group Video Calling functionality in time for Christmas.

Software Release Deployment

Lars Rabbe also committed to review Skype's "testing processes to determine better ways of detecting and avoiding bugs which could affect the system.". Hopefully this promise includes:

• 'Old fashioned' regression testing of all old versions of client software
• Large scale network testing that does not impact live users - especially at peak traffic times!

These are rules that traditional service providers have followed for decades. Perhaps a little more respect for the "old fashioned" network operators and their software release processes is warranted.