T-Mobile 3G Delays

T-Mobile USA Network Expansion Hit by Delays in Vacating Radio Spectrum
WASHINGTON (Dow Jones)--Wireless companies, which spent billions of dollars in last year's government auction of airwaves, have been unable to use a major portion of this radio spectrum due to the surveillance activities of several federal law enforcement agencies.

For T-Mobile, the issue is impeding its U.S. expansion. The company, a unit of Germany's Deutsche Telekom, was the largest bidder, having spent nearly $4.2 billion to acquire the spectrum in June 2006. A total of 90 megahertz of radio spectrum was sold, raising $13.8 billion for the U.S. Treasury.

The Justice Department and Homeland Security Department continue to use airwaves for mobile surveillance of criminal activities that T-Mobile, and others, purchased at auction. As a result, Bellevue, Wash.-based T-Mobile USA has been unable to expand to regions where its service is patchy or even nonexistent.

"It makes the deployment of wireless networks by the commercial industry almost impossible if there's any risk of interference with these government systems," said Mark Gibson, a senior director at Comsearch, a consulting firm working on behalf of both the government and some of the companies that acquired spectrum.

At the time of the auction, the companies were aware the spectrum they were seeking to acquire was being used by various federal government departments.

The government agencies were given $1.1 billion raised in the auction to relocate to other radio spectrum, but most of them have yet to move.

So some five months after the agencies received funds to move to other airwaves, companies such as T-Mobile haven't been allowed to use more than half the spectrum they bought.

The companies were told government agencies would be sharing use of the auctioned airwaves while they prepared to relocate. But they didn't know the agencies were using the airwaves for surveillance activities related to sensitive crime-fighting investigations.

"It's kind of a black box; it's difficult to tell when, how much and where the spectrum is being used by these agencies," said one person familiar with T-Mobile's position.

As a result, some industry analysts believe T-Mobile made a huge gamble in investing heavily in spectrum without fully knowing what the government agencies were doing.

An official involved with the auction said the companies were warned.

Bidders participated knowing they didn't have full details about the government's ongoing use of the spectrum, said John Kneuer, assistant secretary of the Commerce Department in charge of the National Telecommunications and Information Administration.

As a result, he said, the companies could have chosen not to participate.

"These are critical government missions and we can't compromise critical government missions," said Kneuer, whose agency is overseeing the transition to private-sector use of the airwaves.

In an interview, Kneuer said surveillance could range from keeping an eye on potential drug operations to investigations related to issues of national security.

Since the auction was completed last year, industry officials discovered that five government agencies within the Homeland Security and Justice departments are using the spectrum for mobile audio and video surveillance for crime-fighting purposes.

And because of the covert nature of this surveillance, the agencies won't tell the companies when, where or even how much of the spectrum they are using.

This has left the companies unable to share this radio spectrum, which they claim is contrary to what they were led to believe before the auction.

The agencies using this spectrum include the Bureau of Alcohol, Tobacco, Firearms and Explosives; the Drug Enforcement Administration; the Federal Bureau of Investigation; Immigration and Customs Enforcement; and the Secret Service, according to the NTIA.

This lack of access to the spectrum represents a competitive setback for T-Mobile. It had sought to build up its capacity in the face of larger rivals AT&T; Verizon Wireless; and Sprint Nextel Corp.

T-Mobile roughly doubled the spectrum it controlled in the 100 largest U.S. markets as a result of the auction, according to people familiar with the matter.

"T-Mobile hasn't been able to begin offering mobile broadband service because it hasn't been able to get a hold of this spectrum," said Michael Gallagher, a former head of the NTIA.

T-Mobile is poised to begin selling new cellular phones as soon as it gets the green light that it can use the spectrum, a person familiar with the matter said.

The company is in negotiations with the NTIA, the Justice Department and Department of Homeland Security to quickly gain access to the spectrum.

Spokespeople for four agencies, as well as the Homeland Security Department, didn't respond to requests for interviews. Kimberly Bruce, a spokeswoman for the Secret Service, said it has quit using the spectrum. A T-Mobile executive declined to be interviewed, saying he didn't want to prejudice negotiations with government agencies.

The government agencies were allowed to set their own timelines for when they would vacate the spectrum. Homeland Security said it would be off it in a year, while Justice said it would take three years from the end of March.
The Justice Department also declined an interview request but agreed to answer questions submitted in writing. The department said the spectrum is being used in support of tactical operations to build evidence in criminal cases.

One House Democratic aide who declined to be identified according to usual practices raised doubtsHomeland Security will be able to meet its timeline.

"I don't know how it thought it would be able to make this transition in a year," the aide said.

Kneuer said the NTIA is trying to determine if interference would occur if the agencies and the companies jointly used the spectrum.

T-Mobile has also offered to pay up to $50 million to buy new equipment or modify existing equipment for the agencies to use temporarily. Kneuer said the government likely wouldn't view this proposal favorably.

Other major acquirers of spectrum in the sale were smaller wireless carriers Leap Wireless International and MetroPCS Communications, both keen to expand beyond their regional bases. Last week, MetroPCS announced an offer to buy Leap.

Both Verizon Wireless, and a consortium of the three largest cable companies, who are developing their entry strategy into the wireless industry, were also significant players in the auction. For Verizon, the issue is less urgent as it has larger existing spectrum holdings, meaning it isn't as reliant as T-Mobile on the new airwaves to expand its service.

Meanwhile, members of the House Energy and Commerce Committee are complaining to the Bush administration about the slow pace of the airwaves being transferred to the private sector.

"Bidders who paid the U.S. government billions of dollars for licenses are entitled to make use of these frequencies as long as there is no harmful interference demonstrated," said a letter sent to administration officials in June from committee Chairman John Dingell, D-Mich.; Rep. Joe Barton, R-Texas; and other lawmakers.

-By Corey Boles, Dow Jones Newswires; 202-862-6637; corey.boles@dowjones.com

(END) Dow Jones Newswires

T-Mobile USA Network Expansion Hit by Delays in Vacating Radio Spectrum ($$$)

Its interesting that the carriers spent so much money on the AWS Auction and yet they cant use the spectrum that was granted to them by the FCC. Oh well back to the waiting game.