The inevitable next step for AT&T…

Posted in Regulatory, Spectrum at 7:42 pm by timfarrar

After the Verizon-SpectrumCo deal that represents “the end of the world as we know it” it has been very surprising how little attention has been paid to the nearly inevitable consequence, namely an AT&T purchase of DISH. With the SpectrumCo deal, Verizon has not only gained a greatly increased block of spectrum in the AWS band for the next stage of its LTE buildout, but has also aligned with the cable companies, as their “out of region” partner for TV service. In response, AT&T not only needs to come up with an alternative source of spectrum, now the T-Mobile deal is as good as dead, but is all but certain to align with satellite TV as their equivalent out of region video offering.

From a spectrum point of view, AT&T obviously needs to buy DISH’s 700MHz E-block spectrum (to give it a clean 12MHz unpaired block when combined with the spectrum it is purchasing from Qualcomm). Less obviously, it also needs to find additional clean paired spectrum for Carrier Aggregation with the 700MHz unpaired downlink. This needs to be outside the 700MHz band to avoid interference with AT&T’s existing LTE network, but AT&T will have to give up most of its AWS spectrum holdings (originally intended to be used for this aggregation pairing) to T-Mobile as part of their breakup fee. Of course at this point in time, the only spectrum that could realistically be used for this purpose is DISH’s 2GHz MSS spectrum (from DBSD and TerreStar), subject to securing a waiver of the ATC gating criteria from the FCC.

By approving the Qualcomm spectrum purchase the FCC appears to be giving AT&T a pretty direct signal to abandon the T-Mobile acquisition in favor of a deal with DISH. DISH is signaling with the suggestions that it has other options (like a deal with T-Mobile or Sprint) and that it is not interested in selling the spectrum, that AT&T will have to pay a high price and will have to buy the whole company, not just the spectrum. And AT&T has just been told by the judge in the DoJ’s antitrust case to go away and decide what it wants to do by January 12.

So now the big question is whether the FCC will take the obvious next step and grant DISH a waiver on Christmas Eve, leaving them to negotiate a deal with AT&T over the holidays. There would have to be a creative way to overcome the windfall issue (probably through an agreement to reimburse the government if the adjacent AWS spectrum sells for a higher price in a subsequent auction), and time is pretty short, but if the FCC wants to process both a Verizon-SpectrumCo and an AT&T/DISH deal in parallel before the election, then action is needed pretty imminently.

The reason that the FCC would want to address both deals simultaneously is that it would be the best (only?) chance to extract matching commitments for near universal (97%-98%) deployment of two competing LTE networks along with the wholesale access conditions needed to ensure that other wireless operators such as T-Mobile remain viable and have access to these networks in the future. Verizon has already struck a wholesale access deal with the cable companies which it could be required to extend to other companies in the future, and presumably AT&T would agree a network sharing/wholesale access deal with T-Mobile in order to reduce the amount of the breakup fee it will need to pay. Of course, these conditions would likely only be imposed under a Democrat administration, providing another reason for the FCC to want to hurry the process along to a conclusion before the November 2012 election, rather than risk the parties potentially delaying things until they see how the election is going to turn out.

In this context, Charlie Ergen has played a masterful game of poker, and far from making the FCC “look foolish” as some have suggested, he simply makes Harbinger look foolish for having failed to do adequate due diligence on the potential problems with the LightSquared spectrum. DISH also looks good in comparison to DirecTV (which ironically has been much more highly valued by investors in recent years), by securing an exit from the satellite TV business at precisely the time that the business case for a standalone satellite TV play in the US looks ever more difficult.


  1. TMF Associates MSS blog » Will it be Merry Christmas, Mr Ergen? said,

    December 16, 2011 at 6:29 pm

    [...] seems like a lot of readers agree with my sentiments that an AT&T takeover of DISH is inevitable, and the only question is timing. In that context, [...]

  2. TMF Associates MSS blog » Imitation is the sincerest form of flattery… said,

    December 20, 2011 at 9:36 am

    [...] this blog (as I’m sure Stifel do), you would have seen all the salient points of their note in my post last week, [...]

  3. TMF Associates MSS blog » What is AT&T up to on the down low? said,

    June 18, 2012 at 7:52 pm

    [...] purpose, but of course that is now off the table with the collapse of the T-Mobile takeover. As I’ve noted before, the Qualcomm transaction alone therefore provides a pretty compelling reason for AT&T to be [...]

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