Market Insight

AT&T avoids legal trouble by opening up 4G interoperability

September 11, 2013

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AT&T has announced a revamp of its LTE network in the lower-700MHz band. It has committed to support band 12 (used by US Cellular, C Spire & others) as well as its existing band 17 (a subset of band 12) within the next two years.

Its 4G frequencies will be interoperable with regional carriers allowing consumers to keep their device should they switch to regional networks using band 12. AT&T will use Multi-Frequency Band Indicator (MFBI) to ensure the functionality of both bands, and not leave existing consumers stranded. Within the first year, 50 per cent of new devices will be compatible.

AT&T has purchased 39 700MHz B band licenses of unused spectrum for $1.9bn from Verizon in 18 states. It expects to use this spectrum to expand its LTE coverage to 270 million consumers by the end of 2013.

Mobile network fragmentation has plagued the US market with operators using both incompatible technologies and frequency bands. Handsets that worked with Verizon's or Sprint's networks were not compatible with AT&T's or T-Mobile's. As a result of this fragmentation, changing carriers is still a complicated process usually involving the purchase of a new handset. This increased difficulty in changing carriers acts as a barrier to competition and reduces churn for the operators. It also increases the power the larger operators have over handset vendors as customised versions of handsets are required for each operator making handsets exclusive to a single operator. Smaller operators on the other hand struggle to get marquee devices customised for their networks.

While AT&T's concession is a step in the right direction for smaller operators and consumers, it currently has no handsets compatible with the lower band 12 frequency. AT&T will not begin rolling out the necessary software updates until MFBI testing is complete and deployed throughout its network to ensure no customer is left without access.

By accepting these conditions AT&T could have saved itself from a potential anti-competitive legal battle with the regulatory bodies. In the wake of the 2007 spectrum auction, several smaller carriers such as C-Spire, Cavalier Wireless, Continuum 700 and U.S. Cellular formed the 700 MHz Block A Good Faith Purchasers Alliance to lobby the FCC for interoperability.

There is another benefit for AT&T with the introduction of interoperability in the lower 700MHz band: the possibility of national LTE roaming agreements with regional carriers. Verizon has partnered with multiple regional carriers to improve its 4G LTE coverage, which has always been superior to AT&T's. Should AT&T reach its 4G LTE coverage goal of about 83 per cent by the end of 2013, it will still be lagging behind Verizon's near-nationwide coverage at over 95 per cent, but will now have the option to partner regional carriers for LTE deployment in the remaining markets.

The big winners from this development are the regional carriers.  These smaller carriers will be able to offer consumers a much broader range of devices. This will include many of the marquee devices that these smaller carriers have not been able to offer their customers so far. It is particularly significant for the second-hand market as many of these smaller carriers operate under prepaid models that require customers to pay up front for their handset. The ability to purchase second hand equipment from AT&T subscribers will also increase the level of choice available.

This deal should also make roaming outside of these small regional carriers coverage areas easier. Carriers using band 12 for LTE, such as US Cellular and C Spire, will be able to sign national LTE roaming agreement with AT&T and offer nationwide coverage. In doing so, regional carriers will be able to offer comparable plans, and compete with the national carriers.


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