Posted by: Bob Quinn on May 18, 2011 at 12:34 pm
My colleague, Joan Marsh, has done a concise job of addressing the question of whether it is really a good idea to require tens of millions of consumers to have to go out and buy new cell phones. Now, I’d like to address, less concisely, but just as importantly, some of the statements made during last week’s hearing on our merger with T-mobile by Sprint CEO Dan Hesse (no relation to Renata Hesse, new most important person in my life) on backhaul.
But first, I need to point out that T-Mobile doesn’t provide special access, and indeed has made significant strides to move away from local landline carrier special access. In fact, last year, T-Mobile projected that by 2Q11, 75% of its cell sites would be served by alternate providers.
What this means is that this merger has absolutely no impact on the issue of special access/wireless backhaul. But despite that, Mr. Hesse brought it up anyway as an issue in this merger.
Specifically, Mr. Hesse asserted that, “Two companies would control most of our nation’s wire line infrastructure and the critical last mile that Sprint and the rest of the industry need [my emphasis] to provide affordable rates and quality service.” And that special access “is a huge piece of our cost structure and the cost structure of all wireless carriers.” He further went on to say that, “What we pay roughly – if you will, 30 percent of the cost of putting in a new cell site goes back to a local landline carrier in the form of payments for special access and those payments are very, very high.”
Now, we all know that this isn’t the first time that Sprint has made complaints on this issue and AT&T, and I personally, have both addressed these issues before. However, given that Sprint sent Mr. Hesse to Congress on Wednesday to say that Sprint needs access to local landline carrier special access facilities (that are priced “very, very high”) to provide backhaul for his broadband services, and that 30% of the cost of his cell towers goes to local landline carriers in special access payments, I thought a little fact-check perspective was warranted.
First, I will point out that Sprint owns a majority stake in Clearwire (54% of the “voting power of Clearwire’s outstanding Common Stock,” according to its most recent Proxy Statement and has appointed seven of Clearwire’s 11 Directors (including the Chairman and Interim CEO). In fact, Mr. Hesse himself served on Clearwire’s Board until last September.
Thus, in accordance with the Sprint mythology, when Clearwire was constructing its 4G WiMax network, it must have HAD to purchase gobs of backhaul facilities from AT&T and Verizon, costing Clearwire millions of dollars because if Sprint has do it, others must too. The reality is, however, strikingly different.
Clearwire’s CTO, John Saw, at a September 2009 Yankee Group presentation stated that 90% of Clearwire’s cell towers (many of which are shared with Sprint, according to claims made at the time of the Sprint/Clearwire merger announcement) were served by microwave backhaul. The same technology, by the way, that Sprint used as backhaul for its XOHM WiMax network – this according to Sprint XOHM then-Chief Barry West when Sprint launched XOHM in 2008. And this is the same backhaul technology, I might add, that the aforementioned Barry West claimed did not develop quickly in the U.S. because of the “relatively abundant and inexpensive” special access services of which Sprint repeatedly complains, most recently at last Wednesday’s hearing.
The last time I checked, neither AT&T nor Verizon was providing a microwave backhaul service. In fact, it was only a couple of weeks ago that Verizon announced that it was using Level 3 for backhaul solutions that utilized microwave technology. So, I assume that the Sprint family of companies was able to acquire those broadband backhaul services without dealing with either Verizon or AT&T. And I also have to conclude that if Clearwire has alternative backhaul suppliers to towers that it shares with Sprint, Sprint must have at least those same alternatives too.
Given all of these facts, I am having trouble squaring Mr. Hesse’s backhaul statements with the genuine marketplace reality…at least according to the folks that work for him and Sprint’s interests in these areas.
Now, Clearwire obviously chose to spend its capex dollars building out its own high speed infrastructure rather than lease copper-based solutions from AT&T and/or Verizon. Clear-ly (no pun intended) Sprint has not made the same choices. For whatever reason, Sprint has chosen to lease rather than to build. But that is a strategic decision by Sprint, not a reason for government regulation or intervention here. And, again, as Barry West aptly pointed out when he was Sprint’s CTO, unnecessary government regulation can actually delay new technology investment as it did for microwave backhaul in the United States.
As I said at the beginning of this post, we have been down this road with Sprint before. It seems that ever since Sprint decided to spin-off its own special access business, someone there has been talking about special access. But given the facts above, one begins to suspect this topic is The Reflex rather than The Reality.