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Wireless carriers? expansion plans could face uphill battle next year

The race is on again between the leading wireless carriers to build market share now that the deal between AT&T and T-Mobile ? which would have made AT&T the largest U.S. carrier ? is dead.

Operators know they need to add significant spectrum and new capacity to meet growing consumer demand. While wireless carriers could be reluctant to chase any large-scale acquisitions because of the scrutiny AT&T faced from regulators, next year they are likely to a variety of ways to continue boost their capabilities.

?AT&T, Verizon and Sprint are three strong competing players on a newly leveled playing field and they have no choice but to expand capacity to maintain market share,? said Susan Rudd, director of service provider analysis at Strategy Analytics, Boston.

?Operators know that aggressive investment in spectrum and infrastructure is the only path to profitability,? she said.

?The spectrum expansions and swaps by Verizon and Sprint reinforce how critical is to expand capacity dramatically right now to meet the explosive broadband demand driven by smartphones and tablets in the US market,? she said.

Data traffic booming
Mobile traffic is expected to continue to grow rapidly next year due to smartphone and mobile broadband data penetration.

As a result, wireless operators will need to add significant capacity to meet this growing demand.

?As we move into 2012 operators need to expand wireless network capacity to cope with the boom in smartphones and applications running on them,? said Mike Roberts, principal analyst and head of Americas, Informa Telecoms & Media, Westborough, MA.

?There are many ways to expand but at some stage operators will need new spectrum to cope with booming data traffic.?

T-Mobile, which received a sizable chunk of cash and some AWS spectrum from AT&T because the deal did not go through, may actually be in a better position now than when the deal was initiated.

T-Mobile and AT&T also entered into a roaming agreement, with T-Mobile gaining coverage in rural areas that it did not have previously.

?I expect them to go back to trying to build the business again,? said Carl Howe, research director at Yankee Group, Boston. ?This gives them the much-needed ammunition to go out and compete against the big guys.?

For AT&T, the failed deal not only means that it needs to find another way to build up its spectrum holdings but that it also needs to polish its brand image, which has been tarnished by the scrutiny of its actions, which many called anti-competitive.

There is a plan in place by the government to release significant new spectrum. However, it is unclear at the moment when it will become available.

?US regulators have a solid plan for supporting the growth of the wireless industry by releasing 500MHz of spectrum by 202, but they need to execute on that plan and make more progress on actually bringing the initial wave of spectrum to market,? Informa?s Mr. Roberts said. ?That is the single more important contribution regulators can make to the long-term success of the US wireless market.?

Regulatory scrutiny
In the meantime, carriers could continue to look to acquisitions to beef up their spectrum holdings.

However, AT&T?s decision to drop the T-Mobile deal because of scrutiny from the Department of Justice and the Federal Communications Commission raises the question of how much difficulty carriers will face in their efforts to expand through acquisition. 

Regulators review any major acquisition of spectrum because it is one of the key assets in the mobile market, and helps to determine market power.

For example, the DOJ is reportedly currently eyeing Verizon?s recent acquisition of AWS spectrum.

?US regulators have drawn a line in the sand on the amount of industry consolidation they will allow,? Mr. Roberts said. ?Clearly AT&T?s acquisition of T-Mobile USA was too large and created too much market concentration, but other smaller deals are still possible.?

Depending on if U.S. regulators hold back wireless carriers? expansion plans, there could be ramifications for the industry?s worldwide standings.

?If regulators delay the Verizon acquisition of Spectrum and AT&T slows its rural broadband deployment for lack of additional spectrum the U.S. could fall even lower in the world rankings for broadband infrastructure and damage its long term economic growth relative to Asia and Europe,? Strategy Analytics? Ms. Rudd said.

Aquisitions may not be an option for some companies ? especially AT&T ? because stockholders will look at the failed AT&T, T-Mobile deal - which cost AT&T $4 billion ? and insist the company focus on other strategies instead.

Old-fashioned methods
?I think this is really about going back to building your business the old fashioned way,? Yankee Group?s Mr. Howe. ?It is no longer about mergers and acquisitions, which are always very splashy but not always the most effective way for creating better service.?

While adding spectrum is a priority for wireless carriers, they also need to be thinking about creating more value-added services as consumers increasingly get comfortable with mobile applications and other services that are not from a carrier.

?The biggest thing that smarpthones have brought to the consumer is that the experience created on a mobile device is no longer dictated by the carriers,? Mr. Howe said. ?This is a fundamental change in the business.

However, while carriers have been focusing on trying to add more services for several years, they are not set up to take the same kinds of risks that high-tech firms are willing to take.

And, the failure of the AT&T deal is not going to help.

?Their willingness to take risks is significantly lower than the people competing from the device side,? Mr. Howe said.

?The failure of this deal is going to create risk aversion on the carrier side and that is going to create opportunities for device manufacturers and content providers,? he said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York