AT&T to Pay $1.93 Billion for Qualcomm Mobile Spectrum

AT&T Inc., the second-largest U.S. mobile-phone carrier, agreed to buy wireless spectrum from Qualcomm Inc. for $1.93 billion as customers increasingly use bandwidth-hogging services such as video downloads.

The spectrum, in the lower 700 megahertz frequency band, covers 300 million people in the U.S., the companies said today in a statement. Chipmaker Qualcomm had acquired the spectrum for its mobile-TV service, which it plans to shut down in March.

AT&T is upgrading its third-generation network to allow for higher speeds while it works on building out its fourth- generation network to debut next year. Larger rival Verizon Wireless turned on 4G service earlier this month.

The Qualcomm spectrum will help AT&T alleviate network- congestion problems such as those experienced by its customers who use Apple Inc.’ iPhone, said Craig Moffett, an analyst at Sanford C. Bernstein & Co.

“This is very high-quality spectrum,” said New York-based Moffett, who rates AT&T shares “market perform.” “It’s especially concentrated in the urban areas. It provides a very strong signal inside buildings and it’s extremely good at penetrating walls and windows.”

Mark McKechnie, an analyst at Gleacher & Co. analyst in San Francisco, predicted on Oct. 6 that the spectrum could fetch as much as $1 billion. The price is similar or lower than in comparable spectrum sales, McCall Butler, a spokeswoman for AT&T, said in an e-mail.

Photographer: David Maung/Bloomberg

An employee of Qualcomm Inc. shows a LG Vu Plus mobile device displaying television using Flo TV at the Qualcomm Uplinq 2010 Conference in San Diego, California. Close

An employee of Qualcomm Inc. shows a LG Vu Plus mobile device displaying television... Read More

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Photographer: David Maung/Bloomberg

An employee of Qualcomm Inc. shows a LG Vu Plus mobile device displaying television using Flo TV at the Qualcomm Uplinq 2010 Conference in San Diego, California.

AT&T is paying 87 cents per potential customer covered by the spectrum, a standard industry valuation, said Credit Suisse Group AG analyst Jonathan Chaplin. He said in a note today he had previously valued Qualcomm’s spectrum at $1 to $1.50.

Flo TV’s Struggles

AT&T, based in Dallas, fell 8 cents to $29.13 at 4 p.m. in New York Stock Exchange composite trading and has increased 3.9 percent this year. Qualcomm dropped 2 cents to $49.44 in Nasdaq Stock Market trading and has risen 6.9 percent this year.

The Qualcomm deal is AT&T’s sixth largest purchase in the past five years, including the $86 billion acquisition of BellSouth Corp. in 2006 and the $4.5 billion it paid for Dobson Communications Corp. in 2007, according to Bloomberg data.

Qualcomm paid $683 million for rights to use the 700 megahertz spectrum in federal auctions between 2003 and 2008, and started the mobile-TV business, called Flo TV, in 2004 to allow users to watch broadcast TV on their handsets. The San Diego-based company suspended sales of Flo TV after it struggled to attract subscribers.

Completion Timing

Qualcomm Chief Executive Officer Paul Jacobs said in an interview Nov. 16 he was considering a range of options for the Flo TV business, including putting it in a joint venture or shutting it down and selling the spectrum.

The company had spoken with several carriers, a person familiar with the matter said last month, without providing specifics. Many carriers are seeking additional spectrum to help relieve capacity constraints.

Qualcomm said it now expects to incur costs in addition to those it had previously predicted for the closure of Flo TV. The company said last month it expected expenses between $125 million and $175 million in fiscal 2011 to exit the business.

AT&T and Qualcomm said they expect to complete the deal in the second half of 2011. The agreement follows AT&T’s announcement last week that it would repurchase as many as 300 million shares -- $8.78 billion, based on the Dec. 17 closing price -- and raise its dividend 1 cent to 43 cents per quarter.

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net; Brett Pulley in New York at bpulley@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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