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Spectrum Wars, Piece By Piece: AT&T Inc. (T), Verizon Communications Inc. (VZ)

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AT&T Inc. (NYSE:T) made a bold bet that it could acquire T-Mobile from Deutsche Telekom AG (PINK:DTEGY) and, in one transaction, boost its market share and, more importantly, ownership of wireless spectrum. The government, however, can’t seem to leave Ma Bell well enough alone and, essentially, scuttled the deal. That has sent AT&T into guerilla warfare mode. It has notable implications for the industry and AT&T.

It’s About Spectrum

AT&T Inc.Subscriber growth is important to cell phone providers. Not only do more customers lead to more revenues, but being the biggest cell phone company is a pretty nice bragging right. At this point, Verizon Communications Inc. (NYSE:VZ)’s wireless operation, which it owns jointly with Vodafone Group Plc (NASDAQ:VOD), can claim to be the king. AT&T would clearly like to ascend to the throne.

Ma Bell tried to leap over Verizon with its proposed purchase of T-Mobile. That deal would have made AT&T the undisputed king, but would have cemented the duopoly that AT&T and Verizon effectively have today by removing one of the few notable competitors. While customers don’t seem to mind the duopoly, the government did and it effectively blocked the deal.

While losing the ability to brag about having the most customers was a bad thing, the real trouble from the busted deal was the spectrum that slipped through AT&T’s fingers. Having the spectrum to serve existing and potential customers is the real challenge today for cell phone providers.

Data, Data, Data

As wireless technology has advanced, so, too, has the use of that technology. It isn’t uncommon for a single user to have a web-enabled cell phone, a tablet of some sort, and a laptop computer, all of which are capable of connecting wirelessly to the Internet. Years ago, it would have just been the cell phone and that would have only been used for voice calls.

Making matters worse is the increased use of data. Sending a text message or receiving an email isn’t problematic, even when multiplied by a cell phone provider’s entire customer base. What gets more difficult is services like streaming video and music. Netflix, Inc. (NASDAQ:NFLX) and Pandora Media Inc (NYSE:P) are two examples of companies complicating the spectrum issue.

In the case of Netflix, and challengers like Amazon.com, Inc. (NASDAQ:AMZN)’s Prime service and privately held Hulu, the massive store of movies and television shows makes watching what customers want easy. Being able to stream that video over wireless spectrum makes video available pretty much anywhere. This is one reason why Netflix ended 2012 with over 27 million U.S. customers.

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