Thursday May 19th 2011
News Analysis: There's a new skirmish in the war that has broken out over the proposed AT&T-T-Mobile merger, this time on the cost of backhaul and claims of an unfair advantage.
A new war of words has
erupted as part of the fallout of the May 11 Senate
Judiciary Committee hearings on the proposed merger of AT&T and
T-Mobile. In that hearing, Sprint CEO Dan Hesse brought up the fact that
Sprint, which is not a major wireline carrier, unlike AT&T and Verizon, is
forced to buy its wireline backhaul from those two carriers. Backhaul is
necessary, of course, because once a cell signal reaches the cell tower, it has
to have a means of connecting with the rest of the phone network.
There are basically three
ways that wireless carriers can accomplish backhaul. They can use digital landlines
provided by the wireline carriers. These lines, known as DS1 and DS3, operate
at approximately 1.5 and 45M bps, respectively.
Wireless carriers can also
use Metro Gigabit and 10 Gigabit Ethernet where available. Finally, they can
use microwave transmission, which has a variety of speeds. Unlike wired
backhaul, microwave transmission can be adversely affected by interference and
occasionally by weather.
Hesse said that Sprint is at a disadvantage because it would be forced to pay whatever AT&T and Verizon felt like
charging for this backhaul, which is called "special access" in the telecom
world. Price regulation was eliminated by the FCC a decade or so ago apparently
in the belief that competition would keep prices low. However, the only real
competition for these lines is between AT&T and Verizon, and the two
companies have divided the U.S. into their own fiefdoms, and neither invades
the other's territory.
Because price competition is
deregulated, the companies can charge whatever they want. The actual prices
aren't disclosed, but one telecom executive, who asked that he not be
identified because of non-disclosure agreements, told eWEEK that this works out
to about $300 per T1 line per month.
This is roughly the same
price that other businesses are being offered for T1 access. However, this is
approximately 15 times higher than Verizon charges for the same bandwidth if
you call it "high speed Internet." Of course, the additional cost does gain you
an SLA (service-level agreement) and increased reliability, but it's still
really steep, mostly because there's no competition.
While both Verizon and
AT&T charge their own wireless divisions for this special access, they're
effectively selling it to themselves, which makes it effectively free. They
also sell the access to each other, and again, it balances out. So Sprint can
easily find itself charged anything the two wireline carriers wish to charge,
and could, at least in theory, be priced out of existence.
On May 18, Bob Quinn,
AT&T senior vice president for Federal Regulatory posted a blog entry
calling Sprint's claims of an
unfair advantage and unfair pricing a "myth". Quinn then brought up the
relationship between Sprint and Clearwire, and pointed out that Clearwire uses
microwave backhaul. This, Quinn claimed, proved that Sprint was obviously using
landline backhaul because it wanted to, not because it was forced to.
Without going into the many
ways that Quinn's argument was totally specious, the fact is that the vast
majority of Sprint's cell sites predate Clearwire, don't have access to the
microwave backhaul and may not be in locations where the microwave backhaul is
even possible. It was so clearly an effort to spread FUD (fear, uncertainty and
doubt) about the merger that it should have carried a warning label. Perhaps,
the fact that much of Quinn's assertions are pure fiction gets around that.
Still, Sprint came out with
a statement of its own. "The only companies who share AT&T's fairy tale
view of the special access market are the landline phone companies that control
approximately 85 percent of the special access market and face no meaningful
competition to meet the needs of wireless carriers or others who depend upon
high-speed broadband connections," wrote Sprint PR Manager John Taylor in a
prepared statement. "When you leverage market power to earn rates of return in
excess of 100 percent, it's easy to understand why you support the status quo."
The senior telecom executive
mentioned above who has access to current rate practices, said that in addition
to the pricing provided, special access customers are also put into a position
where they suffer huge penalties if they try to move to another carrier.
The way this works is that
to get favorable pricing, wireless carriers must commit to a specific number of
digital lines in any given metropolitan area. If they reduce their usage, the
price goes up dramatically on all of their lines-so high the executive said, that
it would more than offset any potential savings from using an alternate
There are ways a wireless
carrier can avoid being held at the mercy of the wireline carriers. The first
is to be a wireline carrier yourself. The second is never to use them in the
first place, which is what Clearwire did. The third is to never get in bed with
them and their special rate plans, which is what T-Mobile did when it decided
to build its cell sites with metro Ethernet and only use T1 lines where there was
no alternative. Sprint, unfortunately, was built out before those other methods
were options, and despite Quinn's assertions, a change clearly isn't an option
Hesse, meanwhile, has reason
to worry. AT&T and Verizon can raise their rates when they please and if it
means forcing Sprint out of business, they can do that any time. If AT&T
gets the market share it wants with T-Mobile, it has just that much more incentive.