Citing the need to support two networks serving more than 20 million subscribers, its future ability to provide wireless data services on par with its CDMA-based competitors and poor results in recent customer surveys, Cingular Wireless L.L.C. informed the Federal Communications Commission it could need as much as 80 megahertz of spectrum in some markets following its pending $41 billion acquisition of AT&T Wireless Services Inc. If Cingular’s request is approved, the carrier could control nearly half of the 170 megahertz of spectrum available today in some markets.
“As demonstrated in detail in the Hogg/Austin Declaration, where both companies have an existing customer base, the combined network will require 80 [megahertz] to provide a full menu of competitive voice and data services,” Cingular noted in an FCC filing, citing a report conducted by William Hogg, vice president of network strategic planning for Cingular, and Dr. Mark Austin, director of operations for Puerto Rico/U.S. Virgin Islands for Cingular. “The post-merger company would require approximately 50 megahertz of spectrum to simultaneously serve the combined customer base with analog, TDMA and GSM/GPRS/EDGE services and allow for anticipated growth in demand for existing services.”
Cingular said it currently needs about four megahertz of spectrum to comply with the government’s analog service requirement, which is scheduled to be phased out over the next several years; about 11 megahertz to provide TDMA services, which the carrier eventually plans to shut off; and 10 megahertz for its increasingly loaded GSM/GPRS/EDGE network. Cingular added AWS has similar spectrum needs.
Cingular has taken steps to bolster its current spectrum position with last week’s closing of its $1.4 billion acquisition of 34 PCS licenses covering 83 million potential customers from NextWave Telecom Inc., though Cingular added that even with those licenses, it would still hold 25 megahertz or less of spectrum in a majority of the top 50 metropolitan areas and will be forced to build out new cell sites in markets where it does not operate a PCS network.
A Legg Mason report last week indicated that following the acquisition of AWS and the closing of the NextWave deal, the strengthened Cingular would have more than 30 megahertz in 99 of the top 100 markets, surpassing Sprint PCS’ 58 markets, T-Mobile USA Inc.’s 47 markets and Verizon Wireless’ 43 markets.
On top of its current requirements, Cingular said it would need access to at least 10 megahertz of clean spectrum to begin deploying UMTS services and that it anticipates it eventually would require a total of 30 megahertz of spectrum to meet its future consumer demand for high-speed wireless data services. The carrier noted its ability to launch high-speed data services would allow it to compete with next-generation offerings from Verizon Wireless and Sprint PCS as well as increase consumer choices.
“By allowing Cingular to obtain this spectrum, the commission will create an additional provider of data services with a transmission rate of 2 [megabits per second] or more and pave the way for the deployment of 3G services expeditiously and over a wider footprint,” Cingular explained. “This will increase competition in the provision of 3G services to a level that would not be possible without the merger and will provide consumers with additional choices for high-speed connectivity.”
In addition to the advanced services it said it could provide with additional spectrum, Cingular pointed to improved customer service and the higher quality network the additional spectrum would support.
“Cingular has struggled to keep up with the other nationwide and near-national CMRS carriers,” Cingular said in the filing. “In addition to lagging behind Verizon Wireless and Nextel [Communications Inc.] in terms of coverage footprint, Cingular ranked third in a J.D. Powers [& Associates] survey regarding network quality.”
Cingular also cited a Consumer Reports survey that found both “Cingular and AT&T subscribers suffer from overloaded circuits in several major cities” and said its acquisition of AWS would allow the carrier to continue to meet consumer demand for quality and advanced services.
In support of its higher-quality network claim, Cingular cited the Hogg/Austin document that reported the trunking efficiencies of combining two identical networks “could result in a reduction of blocked calls by more than 180,000 calls per day” in metropolitan areas and approximately 10,000 calls per day in some rural environments.
“While these figures are based on certain assumptions, they indicate the order of magnitude of the consumer benefits of the merger, which will occur not just in a few special cases but will generally occur wherever Cingular and AWS networks are combined,” Cingular commented.
Cingular’s management claimed at last month’s Cellular Telecommunications & Internet Association Wireless 2004 event that the additional spectrum that it gains from the acquisition also would allow the carrier to ease customers from its analog and TDMA networks onto its GSM-based network at the customers’ own convenience instead of having to pressure customers to make the switch. In the past, such pressure tactics have resulted in higher churn as customers begin to look at alternative carriers as well as higher costs related to subsidizing new handsets.
“Absent the merger, the ability of either Cingular or AWS to improve quality and roll out new services is limited,” Cingular added.
While most analysts seem to think the FCC will approve Cingular’s acquisition of AWS, there is doubt the government will fully comply with the carrier’s spectrum requests. The government agency warned that when it lifted the spectrum cap at the beginning of last year it would still look closely at any deals that would threaten the competitive nature of the wireless industry.
“We expect [Cingular] will argue that combining their spectrum gives them the ability to offer new advanced wireless data services,” noted Legg Mason. “But if the services are dependent on such large spectrum holdings such that the combined company would be the only company that can offer them, the public-interest argument could hurt their argument that the merger does not threaten competition.”
Others noted Cingular likely would have to divest some spectrum in a number of Florida and Texas markets where it controls in some cases more than 100 megahertz of spectrum, as well as the possibility of selling off some spectrum in the Los Angeles and San Francisco markets, where it would control 75 megahertz of spectrum. Cingular has said it would resist such divestitures and has reportedly included an escape clause in its deal to acquire AWS that it could enact if divestitures totaled more than $8 billion.
