AT&T’s Eternal Search for Cell Tower Salvation

March 22nd, 2011

It seems pretty clear to me that AT&T has a serious problem. They clearly didn’t plan for the onslaught of data consumption on the part of newly-minted owners of iPhones and other smartphones over the past few years. Problems are legion. In some larger cities, iPhone users report frequent disconnects, assuming they’re able to get a usable signal in the first place.

The arrival of the iPhone at Verizon Wireless has been a revelation to some. Where they once confronted serious problems making phone calls, suddenly everything just works, well more or less anyway. Remember that Verizon’s CDMA network doesn’t let you do voice and data simultaneously, an advantage for AT&T, which allows both functions to operate together. And don’t forget that cell phones use a two-way radio system, which means that buildings, network traffic, and even weather might conspire to make it difficult, if not impossible, to make and receive phone calls. So even the top-rated cell carriers will have dead spots, but they have fewer than the ones at the bottom of the pile.

It’s not just Consumer Reports own reader surveys, but AT&T traditionally hasn’t scored well in many cities. If you haven’t had problems yourself, just check anecdotal reports online and you’ll see loads of reports about dropped calls and other difficulties. Sure, AT&T claims they’ve spent billions of dollars to upgrade and expand their network. I’m assuming this is true, but that doesn’t guarantee it’ll get any better in your city. Even if AT&T has a pile of cash to build new towers, local zoning laws and resident objections may prevent them from building the one that’ll serve your neighborhood.

According to Steve Jobs, it takes three years to get a cell tower construction permit in San Francisco, whereas the same approval process can be done in weeks in Texas. Maybe that explains why AT&T still has serious problems in San Francisco, but the same is true in many other cities. Here in the Phoenix area, I don’t encounter serious signal lapses during my travels (except for a recent episode that was addressed by AT&T after a couple of complaints).

But the iPhone has become so popular, it appears millions of customers are willing to endure subpar service because of its other advantages. Certainly it doesn’t appear that AT&T’s revenues have been hurt.

I suppose AT&T’s decision-making process makes sense. They claim it would take five years to gain the advantages in network capacity that will be delivered far sooner by adding T-Mobile’s mostly compatible network structure. But mergers of this scope won’t past muster overnight, and I’m not just referring to the logistics in integrating these two companies. First, regulatory agencies in the U.S. have to approve the transaction, and it’s a sure thing that they will carefully scrutinize not just the impact to the two companies, but to the country at large. Opposition from consumer groups is already growing, largely because of the fears of the consequences of reduced competition in pricing and job losses.

Up till now, there have been four major wireless competitors in the U.S. (following the acquisition of Alltel, the fifth largest carrier, by Verizon some time back), along with a bunch of lesser players. But some of those lesser companies simply lease network space from the larger carriers, and then resell the services to their customers. If this AT&T/T-Mobile deal passes muster, there will be three major players, and it’s a sure thing that Verizon Wireless will be looking closely at Sprint, which has a compatible CDMA network, in hopes of regaining the number one spot in the market.

I expect, though, that a Verizon/Sprint hookup will be a harder sell. AT&T can argue that their well-known network problems would be solved much faster as the result of the T-Mobile merger. That, in turn, would appear to benefit customers. T-Mobile, while praised for good service and network quality, has its own coverage problems in some areas, not to mention being unable to get an iPhone to sell. This deal appears to be a win-win for both companies, except for employees whose jobs will be deemed redundant, unfortunately. Verizon Wireless, however, is not confronting any serious network congestion issues.

Whether the customer benefits is a mixed bag. T-Mobile is known for low prices, particularly for their data plans. You might expect that AT&T’s pricing plans will be adopted if the deal goes through. Then again, it’s possible government regulators will insist on more aggressive pricing before they give the go-ahead. Some divestitures may also have to be made, which may force AT&T to auction off some of their wireless spectrum contracts.

Even if the deal goes through, it may take a year or more to close the transaction. Once that happens, AT&T’s engineers will have to work with their T-Mobile counterparts to integrate their networks. Even if adding AT&T’s GSM frequencies to T-Mobile cell towers can be done without serious difficulty, it may require a fair amount of time for the improvements to be felt.

It’s quite clear that T-Mobile customers who hope to have an iPhone on their network are going to have to continue waiting. I expect you’ll be seeing the iPhone 6 before this deal is closed.

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