Spectrum Hungry AT&T Strikes A Deal With Verizon

Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The top US wireless carrier Verizon (NYSE: VZ) is selling airwaves to AT&T (NYSE: T). The carrier had given word to regulators that it would sell its spectrum in the 700MHz B block if its spectrum deal with the cable companies was approved. However, in the past few months the telecom provider made it clear that it would not sell its license if it was undervalued. Now the carrier seems to have found an eligible suitor willing to make an acceptable offer. AT&T is in a spectrum acquisition spree and proposed two spectrum acquisition deals in the same week.

Enhancing spectrum position
Just days after AT&T announced its intention to acquire Alltel's wireless business in a $780 million cash deal, on Friday the second largest carrier proposed to buy airwaves from Verizon in consideration of $1.9 billion cash and spectrum license in 5 markets. The deal is subject to regulatory approval from both FCC and the Department of Justice and is expected to close in the second half of the year.

The transaction would enhance the spectrum position of the carrier that is of late actively involved in a number of transactions to satiate its spectrum thirst. The deal would give AT&T license to access airwaves in the 700 MHz B band. In addition, the company would attain AWS spectrum license in several markets including Los Angeles, California, Florida, Illinois, Montana, Ohio, Oklahoma, New York and Texas. The airwaves would be used to build and expand its 4G LTE network coverage across the nation.

The wireless demand for smartphones, tablets, and other devices is growing at an incredible rate and carriers are entering into deals to satisfy the rising need. While Verizon is reshuffling its spectrum holdings, AT&T is hunting for more airwaves. However, the Dallas carrier is not the only one seeking to increase spectrum holdings. Kansas based Sprint (NYSE: S) is also in the race and has its eyes on spectrum king Clearwire. The cash infusion from Softbank has given the third largest US carrier the financial backing to make the acquisition proposal. Sprint is preparing to get stronger to fight its larger rivals Verizon and AT&T. In addition, T-Mobile and Richardson based MetroPCS are in merger talks and currently awaiting FCC’s approval. However, AT&T is making sure to maintain the distance and even widen it. Let’s see what its strategy is.

AT&T on a spectrum acquisition spree
AT&T failed acquisition of T-Mobile taught the carrier a lesson: regulators do not support big deals. So the carrier started looking out for smaller transactions. In such a way the regulatory screening process wouldn’t be as critical and these small spectrum deals put together would make a big difference in bolstering its capacity. In August 2012, the carrier entered into an agreement to buy NextWave Wireless to add more airwaves. Randall Stephenson, the Chief Executive said that the company went through almost 50 deals last year, which made its total spectrum position increase by a third. The Verizon deal would give the company access to spectrum which covers 42 million people across 18 states.

Spectrum is the lifeblood of the wireless industry and is extremely essential for carriers to compete to build the required network infrastructure. AT&T had been very critical of the regulator when it disapproved the T-Mobile acquisition attempt. But the company got great support from the FCC in December when it won a go-ahead signal to buy spectrum license on the AWS and WCS band from Comcast, NextWave, Horizon, and San Diego Gas & Electric. The company wishes to bolster its airwaves position further and is still not satisfied.

My takeaway – insatiable hunger
The hunger for spectrum seems insatiable. The industry is witnessing several consolidation and acquisition attempts where the spectrum license is reshuffling. AT&T is on its acquisition spree and is constantly adding airwaves to catch up with bigger rival Verizon. Also, future customer demand is expected to grow exponentially and AT&T is doing all that is required to create provision.

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