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FCC asks AT&T for more information on LTE rollout

The government wants to learn why AT&T believes it should acquire T-Mobile USA, rather than invest in an expansion of its high-speed services.

AT&T is facing additional questioning from the Federal Communications Commission after a document surfaced noting that the company had considered paying less than one-tenth of its T-Mobile USA acquisition price to expand its high-speed service across the U.S.

Earlier this month, a document from AT&T lawyers sent to the FCC was posted on the commission's Web site. That letter contained details about AT&T's plans to expand its HSPA+ and LTE rollout and included information that wasn't supposed to be viewable by the general public. However, when the letter was posted, the confidential information was not redacted, revealing to everyone that AT&T could have paid substantially less money to reach near-universal high-speed coverage across the U.S.

According to the document, filed with the FCC on August 8, AT&T estimated that it would have needed to invest $3.8 billion to "expand LTE coverage from 80 to 97 percent of the U.S. population." The company said that "its original plans" were to cover 80 percent of the population, or about 250 million Americans, by the end of 2014, but planned to accelerate the rollout to complete it by the end of 2013. It anticipated that by the end of 2011, 70 million Americans would be covered with its LTE service.

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However, in January, the letter reads, AT&T's senior management decided once and for all that there was "no viable business case" for the expansion, since the company had already planned to offer HSPA+ service to 97 percent of the population by the end of next year.

"AT&T senior management concluded that it could not justify expanding its LTE footprint beyond the Plan of Record, despite the potential marketing and competitive benefits of doing so," the letter reads. "Specifically, AT&T senior management concluded that, unless AT&T could find a way to expand its LTE footprint on a significantly more cost-effective basis, an LTE deployment to 80 percent of the U.S. population was the most that could be justified."

Soon after the unredacted letter was posted on the FCC Web site, it was taken down at AT&T's request.

However, by then, the damage was done. One of the key reasons AT&T has cited for its proposed merger with T-Mobile USA for $39 billion is its ability to expand its LTE coverage to about 95 percent of the U.S. population. But The Wall Street Journal, which first reported on the story, said that the FCC is interested in learning more about why AT&T would want to spend $39 billion on a merger, rather than $3.8 billion to arrive at the same benefit.

For its part, AT&T has stuck by its claims. In an interview with the Journal, a company representative said that it will provide additional details on the basis of its decision to acquire T-Mobile USA and that the company simply doesn't believe it could "deliver LTE to 55 million more Americans without our merger with T-Mobile."

The LTE argument is central to AT&T's ability to gain the regulatory approval it needs to complete its merger with AT&T. Those in support of the merger have argued that the broadband benefits are too good for the FCC to pass up. In a letter to the FCC earlier this month, Rep. Lamar Smith (R-Texas), argued that the merger will actually help consumers by improving the quality and capacity of broadband networks, as well as create jobs.

At the start of August, 26 governors, 92 mayors, 11 state attorneys general, and 79 House members had publicly noted their support for the deal.

However, several other lawmakers, including Rep. Ed Markey (D-Mass.) and Sen. Herb Kohl (D-Wis.), have argued that the merger could prove to be "highly dangerous to competition and consumers."

Sprint CEO Dan Hesse has been especially outspoken about the merger. Hesse, who would be running a company that would be dwarfed in size by AT&T and Verizon if the deal is approved, agrees with lawmakers who say competition will be hurt if the merger happens.

"Competition will be stifled, growth will be stifled, and wireless innovation will be jeopardized," he said while speaking at the Commonwealth Club in San Francisco in April. "We just can't let this happen."

Unfortunately for Hesse, it's not up to him. The FCC plans to make its ruling early next year. The U.S. Department of Justice must also approve the merger.