May 9 (Bloomberg) -- AT&T Inc., the second-largest U.S. mobile-phone company, won a bid for Verizon Wireless assets, agreeing to pay $2.35 billion in the government-forced auction to narrow the subscriber gap with its larger rival.

AT&T will pick up 1.5 million subscribers along with network assets and mobile licenses for 79 service regions in 18 states, Dallas-based AT&T said yesterday in a statement.

Verizon surpassed AT&T to become the biggest wireless carrier after it bought Alltel Corp. in January. Its dominance in more than 20 markets led the U.S. Federal Communications Commission to demand the asset auction.

“For Verizon, there just aren’t that many potential buyers out there,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. “This looks like a match made in heaven.”

Meantime, Verizon agreed to pay $240 million to AT&T for five wireless service areas of Centennial Communications Corp., AT&T said in a separate statement yesterday.

AT&T announced plans to buy Centennial in November. It said in the statement that the sale of assets to Verizon should resolve antitrust issues over its Centennial purchase.

“AT&T has been having some trouble getting the Centennial deal through the regulatory process,” Moffett said. “This may help check two boxes.”

Carriers are jockeying for a bigger share of the wireless market, rolling out dueling Web-enabled phones and adding new devices, such as miniature laptops, to their networks. Phone companies have already sold enough wireless devices to cover almost 90 percent of the U.S. population.

Cost to Earnings

Buyout firms Blackstone Group LP, KKR & Co. and Carlyle Group also submitted bids for the Verizon assets, as did wireless carrier U.S. Cellular Corp., according to people familiar with the auction.

There are still some Verizon assets yet to be sold. That part of the auction is continuing, said spokesman Jim Gerace said in an interview last night.

Costs to integrate Verizon’s subscribers and other expenses will dilute earnings per share by about 6 cents in the year after the deal closes, AT&T said.

The network AT&T is inheriting isn’t compatible with its own, and the company may be forced to replace customers’ handsets eventually, said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore.

Converting the Verizon subscribers to AT&T’s technology will take about a year and result in additional capital investment of about $400 million through 2010, the company said.

King said he didn’t foresee any antitrust issues with the AT&T-Verizon deal.

‘Grow Organically’

“These are pretty much forced divestitures,” King said. “The only way there would be any kind of problem is if AT&T announced they wanted to go in and shut the subscribers down.”

Verizon bought Alltel from the buyout arm of New York-based Goldman Sachs Group Inc. and TPG Inc. Basking Ridge, New Jersey- based Verizon spent about $28 billion for Alltel, which had some 14 million customers at the time.

AT&T fell 20 cents to $25.25 in New York Stock Exchange composite trading. The shares have lost 11 percent this year. Verizon Communications Inc., which co-owns Verizon Wireless, dropped 1 cent to $29.85 and is down 12 percent this year.

In terms of acquisitions, “we could be seeing the end of the line for Verizon and AT&T,” said Moffett at Bernstein. “In this administration, it’s not clear that there is an appetite for either to get any bigger in wireless. They’re going to have to grow organically from here.”

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: May 9, 2009 00:01 EDT