AT&T to Buy 700 MHz Spectrum from Qualcomm

"The proposed transaction is a prime example of the anti-competitive harms that stem from excessive spectrum aggregation by large wireless carriers,” the Rural Telecom Group said. It called on the FCC to impose data roaming requirements on AT&T if it the purchase is approved, as well as a mandate that any devices that work in the lower 700 MHz band work across “all spectrum blocks."

"It is extremely concerning” that AT&T and Verizon will now own more than 85 percent of all commercial 700 MHz spectrum, said Steve Berry, president of the Rural Cellular Association. “The expanded dominance of the largest two carriers is proof positive that the FCC must attach interoperability and data roaming mandates to any order that approves the sale of this valuable asset.”

The spectrum will help AT&T add capacity, especially downlink capacity, as it rolls out its LTE network, a spokeswoman said. Once LTE standard 3GPP Release 10 is deployed and compatible handsets and network equipment are developed, the carrier will begin deploying the Qualcomm spectrum, she said. AT&T was the second highest bidder in 2008’s 700 MHz auction, paying $6.64 billion for 227 licenses, all in the B block. Verizon Wireless was the top bidder, buying the six 22 MHz regional licenses covering the continental U.S. and the license for Hawaii for $9.3 billion.

From “a competition policy perspective, the deal will be controversial,” Stifel Nicolaus wrote investors. “But ultimately, we believe the government will allow it because from a spectrum management perspective it makes sense.” AT&T may have to make some concessions to win approval from regulators, the investment firm said. “Cynics may look to AT&T’s possible acquiescence to net neutrality rules as an example of one of the early informal concessions, though we understand it’s also subject” to Justice Department review.

Jonathan Chaplin of Credit Suisse doesn’t foresee any difficulties getting regulatory approvals, he said in an interview. The FCC is looking for additional spectrum for mobile carriers to use, so it’s unclear what they would gain by blocking the deal, he said. The spectrum doesn’t have much use for any buyer besides AT&T, Chaplin said. “The most likely alternative buyer would be Verizon, who may be interested in some spectrum for broadcast video or Dish."

The deal is good news for AT&T and Qualcomm, Gleacher & Co. analyst Mark McKechnie said. The spectrum will assure “smartphone growth in the U.S. for years to come as part of AT&T’s network.” The price is higher than expected, he said. Qualcomm bought spectrum for $685 million total in two auctions in 2003 and 2008 and has been carrying it on the books for $746 million, he noted. “FLO TV has been a thorn in investors’ sides for a long time,” Bernstein analyst Stacy Rasgon said. Qualcomm is making a good return on its investment of about $700 million for the spectrum, he said. “I'm glad to see them get out of it.”

The size of AT&T’s spectrum holdings varies widely by market, from 16.4 MHz in Scottsbluff, Neb., to 123.2 MHz in Erie, Pa., Credit Suisse said. Qualcomm in October said it would suspend sales of devices for FLO TV -- which delivers video to cellphones using a broadcast network -- but customers would continue to receive programming into the spring. The company later said during its Q4 earnings call that it would exit the business and that it was considering several options for FLO TV, including setting up a joint venture or selling the spectrum licenses.