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December 21, 2011

What Will AT&T Do Next?

By Gary Kim, Contributing Editor

With the formal end of the AT&T (News - Alert) bid to buy T-Mobile USA only days old, speculation about what might happen next already has begun, especially as regards AT&T and its hunt for more spectrum. At the same time, the Verizon Wireless (News - Alert) deal with four cable companies appears also to be under Department of Justice review, for potential “restraint of trade” issues. 

Verizon has agreed pacts with SpectrumCo, a joint venture of Comcast, Time Warner (News - Alert) Cable and BrightHouse Networks, and separately with Cox, to purchase mobile licenses and to cross-sell broadband, mobile and pay-TV services. If the transactions are approved, Verizon Wireless will have 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100 markets, giving it a "meaningful competitive advantage", saysJohn Hodulik of UBS.

Another analyst thinks Dish Network, long a rumored acquisition by AT&T for other reasons,  might be coming. Where in the past the issue had been the value of Dish as a provider of video entertainment, now the driver might be Dish spectrum assets, especially if Dish gets Federal Communications Commission approval to re-purpose satellite spectrum for terrestrial broadband, as Dish has asked.Christopher King of Stifel Nicolaus argues that a Dish purchase would be less controversial with regulators than the T-Mobile USA deal, as it would not remove a national mobile provider from the market. Also, Dish and AT&T would not likely be viewed as direct competitors.

Some now speak of a realignment
of the “cable versus telco” market structure, where it is “Verizon and cable TV” against AT&T and satellite.” It’s a catchy way of putting things, but some of us would argue that the cable industry’s deep-rooted culture does not allow such thinking to take root. A Dish-AT&T deal, including cross-selling, could mirror the partnership between Verizon Wireless and cable companies, King added. Under AT&T, Dish could continue to operate its satellite-TV business, while saving on programming costs by consolidating with AT&T's IPTV (News - Alert) service U-verse. Instead, you might argue that some leading cable operators have simply substituted Verizon Wireless for Sprint as a supplier. 

One is tempted to say “partner” in such cases, but that would overplay the likely thinking on the part of cable executives, who would approach such deals as “supplier” agreements. And among the cardinal rules of cable industry thinking is “never let suppliers dictate your business.”One would be on safer ground in arguing that, with the exception of T-Mobile USA, which remains among the most-lucrative potential anchor tenants for Clearwire (News - Alert) or LightSquared, the Verizon deal with Comcast, Time Warner Cable, Bright House Networks and Cox Communications removes a great deal of potential demand from the wholesale market.

Gary Kim is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Juliana Kenny
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