Sprint Fears Getting Priced Out of Existence by ATandT-T-Mobile Deal

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.