AT&T and T-Mobile have dropped their proposed $39bn merger

US carrier AT&T has ended its bid to acquire rival T-Mobile USA, after a nine-month pursuit. The firm announced that it has agreed with T-Mobile’s parent company Deutsche Telekom AG to terminate the bid, which involves AT&T paying DT $4bn in break-up fees.

AT&T condemned the efforts of the Federal Communications Commission (FCC) and the Department of Justice (DoJ) for the parts they played in blocking the proposed $39bn merger.

The DoJ filed a civil antitrust lawsuit in a bid to block the deal, claiming that the deal would “substantially lessen competition” in the US wireless sector, while the FCC said that AT&T would have to face an extra administrative hearing next year, before the merger could go ahead. FCC chairman Julius Genachowski had said that letting the two operators merge would “not be in the public interest” and that if approved, “thousands of jobs will be lost in the aftermath”.

Competitor Sprint Nextel also attempted to block the acquisition by bringing a lawsuit against AT&T, claiming the deal would be a violation of Section 7 of the US Clayton Act, which covers competition issues in the US.

These moves resulted in AT&T and T-Mobile USA withdrawing their filings relating to the merger from the FCC last month. At the time, the firms said they would continue to pursue the merger “as soon as is practical”, despite opposition from the DoJ, but they have now backed out entirely.

“The actions by the FCC and DoJ to block this transaction do not change the realities of the US wireless industry – it is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately,” AT&T said in a statement.

It continued that the abandoned merger would have offered an interim solution to the US spectrum shortage, and claimed that now customers will be harmed and needed investment will be stifled.

Randall Stephenson, AT&T chairman and CEO, said:  “Over the past four years we have invested more in our networks than any other US company. As a result, today we deliver best-in-class mobile broadband speeds – connecting smartphones, tablets and emerging devices at a record pace – and we are well under way with our nationwide 4G LTE deployment. To meet the needs of our customers, we will continue to invest.”

He added, however, that adding capacity to meet these needs will require policymakers to do two things.

“First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the US wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC.  Second, policymakers should enact legislation to meet our nation’s longer-term spectrum needs.”

As a result of the merger breaking down, AT&T will pay out a pretax accounting charge of $4 billion in the 4th quarter of 2011 to Deutsche Telekom. In addition, the two operators will enter a mutually beneficial roaming agreement.

Thomas Wehmeier, principal analyst for telco strategy at Informa Telecoms & Media said that, despite receiving a huge break-up fee, Deutsche Telekom will be disappointed with the outcome of the proposed merger.

“There are very few occasions when you are forced to walk away from the table with $4bn in your pocket and still feel like you’ve just been short-changed – that’s what the collapse of the sale of T-Mobile USA will feel like to Deutsche Telekom,” he said.

“Having frequently – and very publicly – reiterated the absence of a Plan B, the break-up fee will be small consolation as it is forced to carve out a third path, or Plan C.”

Wehmeier said that, in the short term, Deutsche Telekom’s management will have to focus on how to shore up its faltering US business, but a longer-term strategy needs to be carved out quickly. The US arm of T-Mobile contributes a sizeable percentage of group revenue and EBITDA, but has been in limbo for nearly a year now, and Wehmeier believes investors will be seeking swift clarification of its revised strategy and evidence that it can meet its 2012 targets.

He added that the news also has wider implications for the sector – and sets the tone for future consolidation in the industry.

“Much has been made of the need for in-market consolidation within the intensely competitive mobile industry, but having to potentially navigate around seemingly insurmountable regulatory hurdles is likely to shake the confidence of would-be consolidators to the core.”

AT&T has admitted that it has set aside $4bn to cover a potential charge to cover the breakup fee and cost of assets to be paid to T-Mobile parent Deutsche Telekom if the merger deal falls through

AT&T said that it has set aside $4bn to cover a potential charge to cover the breakup fee and cost of assets to be paid to T-Mobile parent Deutsche Telekom if the merger deal falls through, according to the Wall Street Journal.

The firms said they would continue to pursue the $39bn merger “as soon as is practical”, despite opposition from the US Department of Justice.

Earlier this week FCC Chairman Julius Genachowski said that letting AT&T acquire T-Mobile USA is “not in the public interest” and that if approved, “thousands of jobs will be lost in the aftermath”.

He had therefore proposed an administrative hearing take place, which would have required AT&T to present its case before an administrative law judge. The FCC would also present its own findings at the hearing.

“I think rather than going through the FCC first, the two companies are trying to work through the Department of Justice, and get things smoothed out there first,” said Sylvain Fabre, research director in the carrier network infrastructure group at Gartner. “However, they’re already planning for the $4bn charge but nothing’s certain until it’s over.”

“No matter what happens, Deutsche Telekom will walk away with something rather than nothing, which can’t be said for AT&T.”

Deutsche Telekom CTO Olivier Baujard and BT's Sean Williams share a panel at the Broadband World Forum

Truly mobile usage is a for the most part a myth, according to the CTO of Deutsche Telekom. Speaking in his keynote address at the Broadband World Forum on Wednesday, Olivier Baujard said that according to Deutsche Telekom’s data analysis, 80 per cent of traffic for a typical customer is generated from just three cells.

“One is home, one is work or university and one other. The maximum is four cells, depending on class of customer”, Baujard said. The data further showed that only ten per cent of data use is truly mobile.

He also noted the impact of larger screened devices such as tablets on wireless data access. “Usage has shifted. The sessions are longer.” Noting the convergence of mobile and fixed Baujard said that, “20 per cent of customers generate 80 per cent of traffic – because they are using the mobile device like a fixed device.”

Following his keynote Baujard shared a panel session with Sean Williams, head of group strategy for UK incumbent BT, who said that the expectation from some that fibre would soon dominate was unrealistic, and echoed earlier comments from Alcatel-Lucent’s Philippe Keryer that there was much life left in copper connections.

“The copper network will be used in its entirety for long period of time,” Williams said. “We have to recognise reality that we are moving at the pace of our customers and there is a lot that can be done with copper. Our business case is predicated on getting 20 per cent of our copper customers onto fibre but I think it’s completely naive to expect to get everyone on fibre – not for a generation.”

Olivier Baujard, CTO of Deutsche Telekom

Olivier Baujard, chief technology officer for the Deutsche Telekom Group, will be giving a keynote speech on day two of the Broadband World Forum taking place on the 27-29 September 2011 at the CNIT, La Defense, Paris, France. Ahead of the conference, we speak to him regarding his thoughts on the challenges and opportunities facing one of the biggest telecoms players on the global stage.

Could you provide an overview of the state of play in your local broadband market?

I would say that both fixed and mobile are seeing growing demand, but the dynamics are extremely different between them. While both are positive, the challenges to meet, service and monetise that growth are very different.

Mobile data growth is by-and-large the most impressive, showing double or even triple digit growth year-on-year depending on the maturity of the market.

This is derived from a combination of higher and higher penetration of data hungry smartphones, such as the iOS and Android based ones. These terminals generate two to three times more usage than other smartphones and five to ten times more than none smartphones. Penetration is growing, and this is directly impacting the volume of mobile data. And all this in the midst of what we call a worldwide financial crisis.

The challenge of mobile data, though, is the monetisation of that growth. This is something that the industry has to solve. We are working on it because the current investment and cost per capacity is at risk of being unsustainable in the next two and three years. So not only do we need more spectrum, but we will also need new technologies and capacity. We need a different business model where the monetisation and costs are not only borne by asset heavy operators.

For the fixed infrastructure it’s all about double and triple play traction. In countries where we can provide content rich and TV services the demand is extremely high. This opens up an opportunity to deploy our VDSL and xDSL infrastructure and also triggers the plans for Fibre-to-the-Home (FTTH) that we have started to devise, and this is a very CAPEX intensive activity.

Is mobile broadband now more important than fixed line to you and to your customers?

There is an immediate, personal, appetite for mobile broadband – or wireless. It’s triggered by attractive terminals such as tablets and smartphones. It is definitely a ‘pull’ market, as that’s what the customers want. They want wireless access to the internet, to social networks, and content rich services like music and video. That is universal, across all our markets.

The future of fixed is massive broadband, while narrowband, as well as areas where there is poor broadband, is captured by mobile. But mobile and wireless will be more limited when it comes to real triple-play offerings, combining TV, internet and voice. Where there is a market for that there is a need for fixed as well.

Where does Wi-Fi fit into your strategy?

Wi-Fi is technically not a mobile but a wireless offer. However, it is a good solution for bridging the gap between mobile and fixed. We can upgrade our customer experience by using more Wi-Fi, when at home, or indoors. Customers get immediate access to full fixed broadband and still have a mobile experience.

What’s your strategy around LTE?

Our strategy is that we will deploy LTE to expand our mobile broadband capability and we will start where we have higher demand and the spectrum for it. We won’t deploy LTE just for the sake of being the first [operator] in a particular market. It’s a tool in our toolbox of wireless and mobile broadband service. And this toolset is composed of HSPA, LTE and WLAN.

As soon as we have secured spectrum, and in markets where the demand is high enough, we will deploy LTE. Not only for capacity reasons but for broadband quality performance as for many services LTE is superior to HSPA.

We have already launched 800MHz in Germany as well as 1800MHz, and 2600MHz in Austria. We believe that 800, 1800, 2600 and maybe 2100 will be the reference [frequencies] in Europe used by most operators.

Part of the 800MHz license obligations in Germany required us to cover ‘white spots’ to provide a fixed LTE  service to the few per cent of German homes that were not within reach of fixed broadband services. This obligation will be completed between now and early next year.

With all the focus on next generation radio technology do you think that enough focus has been made on backhaul?

We have learned in the past two or three years that the bottleneck in terms of capacity of our network was not always in the radio part but too often in the backhauling and we have learned from that so it doesn’t happen again.

The backhaul challenge will be the same in reality in both an HSPA network and an LTE network. As a consequence, in each of our networks we have a systematic broadband backhauling plan, as a companion to the deployment of LTE and HSPA, to ensure that the backhauling component is compatible with the access capacity. We continue to invest in fibre and point-to-point microwave.

There have been discussions amongst carriers that the major OTT players should contribute to network costs. Where do you stand on this?

There is a need for continuous huge investment in network assets, mobile as well as fixed, which will not vanish. There is a need for CAPEX for infrastructure and innovation in the infrastructure.

Now in the current model only a number of players have this burden. At the same time the regulation and business models have not evolved. That’s a real problem and this has to be solved.

Earlier this summer there were a number of European-led discussions amongst different companies from the content media, and there were some recommendations of how we can solve that issue. And this will be solved most probably by a double sided business model where not only the final user pays, but also the companies that make money out of their final customer getting access to their rich application and content.

If we don’t want to collapse the industry, to spoil innovation, or nationalise – and I’m not sure we want that to happen – then we have to find a way out.

In your view, how should the broadband industry improve and what challenges does it face?

I’m convinced that the industry will have to improve in [delivering] ease-of-use and [to provide a] clear value perception by the customers. And it’s not an overnight thing. There must be a sense of perceived value in what they get. This has to be created first, and maintained second.

I’ll give you an example. The data roaming issue for mobile users is a long lasting discussion between the operators, the consumer associations and the regulators. We have decided to make a big shift with new roaming tariffs that we implement all across Europe, to make it simple.

And we have deployed new packages for all our customers where they will know in advance what they will be paying – and it’s a tenth of what they used to pay in the past, by the way. But we have decided to simplify the tariffs.

What we expect from that is that we will get more trust from our customers so they will use more data when roaming. It is not philanthropy; we believe it will be the right way to develop our business.

The second challenge is how the infrastructure can be financed. That’s a big problem both in fixed and in mobile. In fixed it’s only a CAPEX issue. It’s not a technology or a capacity issue, it’s a money issue.

In mobile, it’s a combination of money and feasibility, because acquisition of sites is almost impossible, as is spectrum. So we could have a situation where there is no technical solution for the capacity demand.

But in fixed, give me the billions and the right of way I need, and then I can roll out FTTH everywhere to 95 per cent of the homes, and then we can get broadband to everybody.

The Broadband World Forum is taking place on the 27-29 September 2011 at the CNIT, La Defense, Paris, France.

The next generation of Apple's popular iPhone is expected to be unveiled soon

The fifth iteration of Apple’s popular iPhone handset has inched closer to commercial availability with the news that Deutsche Telekom has begun taking pre-orders of the new mode.

The company told Bloomberg that it will hand out coupons to people who request the replacement for the iPhone 4, but it would not confirm what the handset will be called or launch details of the device.

As of yesterday, O2 UK claimed that it did not know when the next iPhone would be made available, while Vodafone UK admitted that it would be available soon and that the operator would be supplying the device.

Meanwhile, Apple is also training staff in its retail outlets on the iOS 5 operating system, which the handset will use - as well as on the new iCloud service, according to 9to5Mac.com.

Apple had originally said that the iCloud service would be launched alongside the next generation iPhone. The report states that training will be done through the company’s internal RetailMe application.

Apple iPhone handsets currently hold 18.2 per cent of the worldwide smartphone market, according to research firm Gartner, trailing behind Nokia, which has 22.1 per cent and Google’s Android operating system, which dominates with 43.4 per cent.

The deconsolidation of T-Mobile UK and plans to get rid of the US operation affected DT's results

German carrier Deutsche Telekom reported a significant drop in net profit for the first half of 2011, from €1.2bn a year ago to €828m this year. Revenues were on the slide as well from €31bn in H1 2010 to €29bn in H1 2011.

Adjusted net profit came in at €1.6bn, versus €1.7bn in the first half of 2010, prompting CEO Rene Obermann to comment on a “persistently difficult environment,” and the company also “seeing light at the end of the tunnel in Southeastern Europe,“ with particular reference to Greece.

Mobile internet continues to be a growth driver, with revenues in this area increasing by 13 per cent year on year to €1.2bn, boosted by growth in the use of smartphones, which now account for 46 per cent of all devices sold by the European national companies compared with 21 per cent one year before. There was also a significant increase in the number of smartphones on the T-Mobile USA network, up by over 50 per cent to almost 10 million within a year.

There were two major events during the first half of 2011 to affect DT’s financials, namely the deconsolidation of T-Mobile UK, which now falls under the Everything Everywhere umbrella, as well as the reporting of T-Mobile USA as a ‘discontinued operation’ due to its proposed merger with AT&T. However, the deal is presently having a tough time of it with the competition authorities.

Ovum analyst Charlie Davies commented: “These numbers and Rene Obermann’s reference to a ‘persistently difficult environment’ underline the challenge facing Deutsche Telekom and many of its peers in combating declining revenues in their core income streams. Deutsche Telekom is betting on sustained longer-term growth in South Eastern Europe to help boost flagging revenue numbers.

“Growth in markets like Poland will be even more important in light of Greece’s ongoing economic woes and the overall shaky economic climate makes this a more risky bet. This means Deutsche Telekom must also maintain progress in reducing opex in order to achieve its targets.”

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TeliaSonera brings a Nordic element to the partnership

Nordic and Baltic carrier TeliaSonera has joined the collaborative M2M programme announced by Orange and Deutsche Telekom in February 2011. The project was put in place to create seamless international M2M services across the portfolios of the German and French incumbents. At launch the agreement covered France, Germany, Belgium and Luxembourg, with the Netherlands and the UK joining subsequently. The addition of TeliaSonera adds Sweden, Norway, Finland, Denmark, Estonia and Lituania into the mix.

While many current and proposed M2M applications involve the connection of static devices, some of the most advanced are international in nature. Fleet management and in-vehicle systems in particular will benefit from the availability of consistent cross-border services.

“With this agreement, now three groups are significantly pushing the boundaries of the M2M ecosystem,” said Anne-Marie Thiollet, EVP Enterprise Line of Business, Orange Business Services. “Global availability and reliability will spur the commercial adoption of M2M services and will stimulate new innovations. We are happy to welcome  TeliaSonera as a member of our partnership and look forward to other carriers joining us in this endeavour; only by working together can we make the great promise of M2M a reality.”

M2M is an area of increasing importance to the operator community, particularly in advanced markets where traditional subscriber bases have become saturated. The prediction from industry leading infrastructure and services vendor Ericsson that there will be 50 billion connected devices by 2020 has become almost accepted thinking among many industry players.

“M2M has a very large economic potential and this cooperation with three of the strongest brands in the market enhances our international offers,” said Håkan Dahlström, president of Mobility Services, TeliaSonera. “We know that the services connected to M2M communication in many cases is vital for business and puts clear requirements on us as a communication operator.”

iPass has launched a Wi-Fi offload service

Enterprise mobility service vendor iPass has launched a zero-click mobile data offload plan it says will allow service providers to deliver wifi connectivity that functions like data roaming, automatically connecting users to preferred networks.

The Open Mobile Exchange (iOMX) service integrates with 3G and LTE networks and allows providers to re-sell their own wifi networks to other operators within the exchange, a feature that iPass says will “expedite the process of bilateral network connectivity, increasing speed to market and avoiding expensive build-outs of Radio Access and core networks.”

According to iPass CEO Evan Kaplan, “the next wave of wifi is becoming a mobile operator phenomenon.” The technology has gained traction among carriers looking to address mobile data congestion on their networks by offloading it onto wifi at congestion points or in order to drive on-selling of other goods and services.

Deutsche Telekom has recently announced its wifi Mobilise service, based on iOMX,  that offers partners a network services exchange for in-country and international roaming. Earlier this year, Japanese operator KDDI  announced a similar deal with US-based wifi provider Ruckus Wireless that the latter claimed was the “world’s largest wifi access and mobile offload network” making 100,000 Japanese hotspots available to KDDI’s  32 million subscribers free of charge. KDDI said it was going to use wifi to backhaul traffic over its WiMAX network. Ruckus’ claims for “world’s largest” status may be dented somewhat by iPass’s announcement that its’ service “leverages the world’s largest commercial-grade network of half a million hotspots.”

Mobitel in Slovenia will launch LTE at 800,1800 and 2600MHz

Eastern Europe is to gain another LTE player with the news that Mobitel, a Slovenian mobile network operator, has deployed a test network based on the next generation mobile technology.

Mobitel said that it was able launch an LTE network for internal testing just a few days after receiving additional test frequencies. It said that it was able to achieve speeds of 100Mbps, with latencies that were half that of its HSPA+ network. It characterized these initial test results as “excellent” and promised users a “state-of-the-art” experience.  Once fully deployed the  network will operate at a trio of frequencies, taking in 800Mhz, 1800Mhz and 2600MHz, which should enable it to provide the right balance of coverage for densely populated and more remote areas at the greatest network efficiency.

The network is at the pre-commercial launch stage and Mobitel said that it would look to gradually expand the network alongside its existing GSM and HSPA network. The latter currently offers theoretical speeds of 21.6Mbps and it intends to offer dual carrier HSPA delivering top speeds of 43Mbps.

The operator said that the network is the result of two years of technology investments that have been made with an eye on implementing LTE and LTE Advanced further down the road.

Mobitel’s use of 1800MHz will go down well with major European players Deutsche Telekom, France Telecom and TeliaSonera who all called for the frequency to be used worldwide as a standard for LTE. In a recent interview with Telecoms.com Mike Wright, director of networks and access technologies for Australia’s Telstra’s explained that re-farming 1800MHz made a lot of sense for many networks looking to roll out LTE. “If you look around the world, many operators actually own 1800. Our view is that it actually makes sense for a lot of operators to look to re-farm and use it more efficiently”.