AT&T points fingers again: We didn’t raise prices; the FCC did

AT&T is heating up its retaliatory campaign against the Federal Communications Commission for denying its $39 billion acquisition of T-Mobile. Speaking at a conference, AT&T CEO Randall Stephenson claimed once again that the merger’s death directly resulted in AT&T’s decision to raise mobile data price by 30 percent earlier this year, The Hill reported.

Stephenson chose a fitting pulpit to attack the FCC. He delivered his speech before the Milken Institute, founded and named after junk-bond trader Michael Milken, who was convicted of felony securities violations in 1990 and sentenced to 10 years in federal prison. Neither Milken nor Stephenson are particularly fond of regulators.

This is not the first time we’ve heard this refrain from Stephenson. Stephenson tried to make the same case to analysis’s and investors in his fourth-quarter earnings call, claiming that the FCC was choosing winners and losers in the lucrative mobile industry. Without T-Mobile’s 4G airwaves, AT&T doesn’t have enough capacity in its spectrum to meet the enormous mobile data deluge generated by millions of new smartphones, which in turn is forcing AT&T to shift costs to the consumer by raising data prices — or so Stephenson’s argument goes.

The truth is that no one forced AT&T to raise prices, not even the FCC. AT&T just raised prices because it wanted to. The FCC is a convenient scapegoat, whether to make some petty point or to deflect attention away from a good old-fashioned money grab. AT&T had, and still has, plenty of head room to grow its network capacity. Following is an analysis of why:

•    While it’s true AT&T raised prices on its low- and mid-tier data plans, it also raised its data caps significantly. A $30 per month customer now gets 3 GB per month rather than 2 GB for $25. If AT&T is so hard up for capacity, why would it invite its customers to consume a greater amount of gigabytes for less money? In many ways AT&T is gaming the system here. It knows few customers can conceivably consume 3 GB per month on a smartphone; and it’s not likely your average consumer knows how massive 3 GB per month is, let alone keeping close tabs on its data use. Still, AT&T effectively lowered its per-megabyte rates for mobile data, which is not something a carrier strapped for capacity would do.

•    AT&T still has plenty of networks it can build. AT&T’s initial 700 MHz LTU rollout is only a third complete. It’s also sitting on a ton of Advanced Wireless Services (AWS) spectrum that it hasn’t even touched yet. Ma Bell could also follow T-Mobile’s and Sprint’s examples and ref arm the spectrum used by its inefficient GSM netowkrs for HSPA and LTE. Eventually AT&T will need to go out and get more spectrum — there’s no denying that — but today it’s nowhere near exhausting its airwaves. There’s nothing stopping it from building its networks more quickly. It has the money: $39 billion to be exact.

•    AT&T’s problem isn’t that mobile data traffic is growing too quickly; it’s that mobile data revenues aren’t keeping pace. AT&T’s mobile data traffic is doubling every year, but it’s only adding an incremental number of new smartphone customers every year. What gives? AT&T’s existing customers are consuming more megabytes, but since they’re nowhere near their caps, they’re not paying anything more. This is AT&T’s own fault, though, because of the way it structured its original smartphone plans. AT&T sold customers big buckets that very few people could consume each month. Now that customers are actually eating the gigabytes they have paid for, AT&T is complaining it’s running out of capacity. It’s hard to be sympathetic.

This isn’t the last we’ve heard from Stephenson on the issue. Much of AT&T’s public communications since the merger’s failure have been direct or indirect assaults on regulators. Ma Bell even used the Super Bowl as an excuse to decry its so-called capacity problems. And as long as AT&T keeps making these claims, we’ll continue to dispute them.

Update: FCC Fires Back

In a speech at the CTIA wireless trade show in New Orleans, FCC Chairman Julius Genachowski denied that At&T’s unsuccessful attempt to acquire T-Mobile has worsened the spectrum crunch or prompted higher prices.
Genachowski told his audience, “I’m pleased to announce today that we are beginning to make this next frontier of spectrum sharing a reality… we are moving ahead in partnership with NTIA to test LTE sharing in the 1755-1780 MHz LTE band, which could allow us to auction paired spectrum in the next three years.”

In March, the National Telecommunications and Information Administration (NTIA) published a report that found approximately 95 MHz of “prime” spectrum in the 1755-1850 MHz band that could be repurposed – and shared – for wireless broadband use. The report proposes a sort of private-public partnership that “relies on a combination of relocating federal users and sharing spectrum between federal agencies and commercial users.”

The FCC Chairman said that, “Given the huge amount of money and time it would take to move all of the federal systems [to other bands] – estimated at $18 billion over at least a decade – sharing is the most promising way forward before deadlines in the Spectrum Act will compel us to auction the 2155-2180 band unpaired.”

What’s more, Genachowski said that on Friday T-Mobile “filed an experimental application to test the sharing concept.”
This February, T-Mobile announced its plans to roll out a 4G LTE network in 2013, due in part to the AWS spectrum it inherited in the failed AT&T merger deal.

Despite AT&T’s accusations, however, Genachowski asserted that the failed merger has not led to a spectrum shortage or high prices.

“The overall amount of spectrum available has not changed, except for steps we’re taking to add new spectrum on the market,” he said. “At its core, the argument – that competition is bad for consumers – is at odds with basic free-market principles.”
On it’s blog, AT&T wrote that “the merger AT&T proposed last year was all about creating more capacity by combining the spectrum holdings and networks of two companies. The FCC was within its rights to withhold its approval. But it is incorrect when it denies the impact such decisions have on the price of wireless services.”

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2 Responses to AT&T points fingers again: We didn’t raise prices; the FCC did

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    The FCC Chairman said that, “Given the huge amount of money and time it would take to move all of the federal systems [to other bands] – estimated at $18 billion over at least a decade – sharing is the most promising way forward before deadlines in the Spectrum Act will compel us to auction the 2155-2180 band unpaired.

  2. shirleycluze says:

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