Mobile carriers: Five predictions for 2012

AT&T's bid to buy T-Mobile for $39 billion dominated the news in 2012, but even though the deal is dead, the deal-making is likely to continue.

It's been a roller coast ride this past year for mobile phone carriers with several unexpected twists and turns. And 2012 will likely be filled with a similar sense of excitement.

The biggest news for 2011 in this sector was AT&T's $39 billion bid to buy T-Mobile. And when the deal was announced in March, AT&T seemed confident it could make it happen. So confident in fact, that it agreed to one of the biggest break-up fees ever. But as we all now know, regulators didn't like AT&T's plan and put a kibosh on its plans.

AT&T may have failed to nab T-Mobile and its wireless spectrum, but that doesn't mean that the deal-making frenzy is over. AT&T still needs wireless spectrum and T-Mobile still needs a generous parent to keep its network afloat and competitive.

And as all wireless operators jockey for more valuable wireless spectrum, I expect more wheeling and dealing in 2012. Below are my five predictions for what could happen in the coming year.

AT&T makes play for Dish Network
The Department of Justice and the Federal Communications Commission have put the kibosh on an AT&T and T-Mobile tie-up. But AT&T still needs spectrum. So what about AT&T and Dish Network?

Paul Gallant an equities analyst at Guggenheim Partners in Washington, D.C., believes AT&T thinks a deal with Dish Network could be a good fit for the No. 2 wireless operator. And he thinks such a deal would have a good chance of getting approved by regulators, according to one of his recent research notes. While AT&T and Dish compete for TV customers, they are only the third and fourth place competitors in markets where they overlap. And there's no question that AT&T could use Dish's spectrum on the wireless side of its business.

Dish could benefit from a deal with AT&T, too. Dish is currently trying to get its new wireless spectrum repurposed by the FCC. This is not typically a quick process and the FCC may ask Dish to adhere to quick build-out requirements for the new spectrum. AT&T, which is the second largest carrier in the U.S. and still has plenty of cash despite paying $3 billion to T-Mobile for its break-up fee, could put that spectrum to good use quickly.

Still, it's hard to know if AT&T would be gun-shy about committing to another merger so soon after the T-Mobile debacle. But I don't expect it to sit quietly for too long.

Sprint makes a play for T-Mobile
Before there was any notion of AT&T buying T-Mobile, there had been talk for years that Sprint wanted to buy T-Mobile. And now that talk is surfacing again. Conventional wisdom holds that if the FCC is unwilling to allow AT&T to buy T-Mobile, it certainly would have to oppose Sprint Nextel's acquisition of the player, right? But Gallant says that may not be the case.

"The most effective--and we believe winning--argument in favor of approval is that the combined Sprint/T-Mobile would be a stronger counterweight to AT&T and Verizon than Sprint and T-Mobile would be separately," Gallant said in a research note published recently. "With Verizon and AT&T continuing to pull away from the pack, we believe policymakers' overarching market structure goal is preventing a wireless duopoly, not preserving four national wireless players."

Of course, any such deal would be vigorously opposed by AT&T. And Sprint Nextel knows this. So it's difficult to say whether the company would have enough guts (or cash) to attempt such a purchase. What's more, Sprint has been down the acquisition path before and hasn't exactly been a smooth one. It's still dealing with the fallout from its 2005 merger with Nextel. Much like that deal in which Sprint and Nextel used different network technologies, the same is true of T-Mobile and Sprint. T-Mobile is a GSM carrier and Sprint is a CDMA carrier. But Sprint's commitment to deploy 4G LTE over the next few years may mean less hassle in terms of future integration.

Even if Sprint doesn't make a play for T-Mobile, I expect some sort of deal announced with T-Mobile in 2012. There's no indication that its parent company Deutsche Telekom would like to invest more in the carrier. And the $4 billion consolation prize it received from AT&T is probably still not enough to sustain the company indefinitely. So my prediction is that Deutsche Telekom will continue to shop around T-Mobile until it finds a buyer. Which company that will be is still the big question.

Spectrum crunch comes to a head
Wireless spectrum is the No. 1 policy issue for big lobbying spenders, AT&T and Verizon Wireless. And I expect that in 2012, these D.C.-heavyweights will work their magic to start getting something done in this area. These companies, along with the entire wireless industry, say they need more wireless spectrum.

The FCC has been harping on this issue for more than a year, as well. And it has been pushing Congress to pass legislation granting it authority to hold auctions to sell unused wireless spectrum that it's getting from TV broadcasters. But efforts to authorize these auctions along with provisions that would allocate 10MHz of spectrum for a new public safety network have stalled in both the House of Representatives and the Senate.

Most recently, Senate leaders did not include spectrum policy legislation in either their two-month extension of the existing payroll tax cut or the $1 trillion omnibus spending bill. And things don't seem to be moving in the House either.

That said, hope is not lost. I know that Washington, D.C., is more dysfunctional than a family on Dr. Phil, but now that AT&T and Verizon Wireless are clearly on the hunt for more wireless spectrum, I expect some inside the Beltway negotiations to kick into overdrive to get something done.

The fact that AT&T was not able to buy T-Mobile and its valuable spectrum, means that the carrier needs spectrum and it needs it fast. What's more, Verizon's willingness to enter into a reseller deal with some of its biggest rivals in cable as part of a broader deal to get its hands on more wireless spectrum is another indication that these heavyweights will do what it takes to get the resources they need.

My prediction is that the TV broadcasters dragging their feet and trying to trip up this legislation are no match for the telcos and their thirst for more wireless spectrum. So a bill authorizing incentive auctions will happen in 2012.

Lightsquared gets sold
The year started out upbeat for LightSquared, a company backed by hedge fund manager Philip Falcone that plans to build a nationwide wireless 4G LTE network using spectrum originally allocated for satellite use. In January, the FCC granted it permission to operate its network in the so-called L-band, which sits next to GPS frequencies. The agency also granted LightSquared a waiver so that it could it build its service for terrestrial use only.

These actions not only increased the value of LightSquared's 56 MHz of radio spectrum, but also upped the ante in terms of competition for major wireless companies, such as AT&T and Verizon Wireless.

Since then, the GPS industry and the other wireless providers have gone on a massive Washington, D.C., lobbying campaign to make sure the LightSquared network isn't built. At the heart of LightSquared's troubles is the assertion by the GPS industry that the network will interfere with already deployed GPS receivers, particularly high-precision receivers such as the ones used in farming equipment and aviation. Of course, it doesn't matter that LightSquared's transmitters aren't the problem and that it's the GPS receivers that are listening to too wide a band of spectrum that causes the interference.

In a recent Forbes article, Daniel Fisher details the history of the LightSquared saga, and he does an excellent job of explaining why this network is doomed not because of technical issues that can't be resolved, but because of politics. His prediction is that LightSquared's main investor hedge fund manager, Philip Falcone, won't be able to come up with the money to build the network or pay off the GPS industry. And he speculates that LightSquared will be forced to sell its spectrum. Stay tuned. The drama will no doubt continue in 2012.

Verizon takes a bold step into video
Verizon Wireless took a bold step earlier this month when it announced a deal with some of the largest cable operators in the U.S. For $3.6 billion, Verizon will get access to about 20 MHz for unused wireless spectrum that a consortium of cable companies bought in 2006.

Also, as part of this deal, Verizon has agreed to resell cable broadband and TV services through its Verizon retail stores. And it will allow cable operators, such as Comcast, Time Warner, and Cox Communications, to resell Verizon Wireless service as part of a quadruple play bundle. And to top it off, it will eventually allow these cable operators to sell their own branded wireless service using Verizon's network.

Wait a minute. Hasn't Verizon Communications, Verizon Wireless's parent company, been waging a bloody war against cable in the TV and broadband markets? Indeed, it has.

But as Verizon winds down the deployment of its Fios fiber-to-the-home broadband and TV network, it looks like the company may be gearing up to compete in a slightly different market.

Following the frenzy of the cable deal announcement, Reuters reported that Verizon is considering getting into the online video market to compete with Netflix and Hulu Plus. The company hasn't announced anything officially, but such a plan to stream video service over a broadband network, anyone's broadband network, could be a smart idea.

Much like Hulu Plus and Netflix, the service could be available via a Roku box or video game consoles like the Microsoft Xbox or Sony PlayStation 3. And it could give Verizon a way to reach customers who live outside of the Fios TV footprint. Delivering video over-the-top on someone else's broadband connection sure beats the heck out of spending billions of dollars more to expand its existing Fios footprint.

So my prediction for 2012 is at the very least, Verizon will begin testing such a service. And my guess is that by year's end, it may even be available in a few markets.

 

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