AT&T in Spectrum Spree to Catch Verizon
AT&T (T) Inc. is cobbling together about $2.6 billion in deals for airwaves to catch up with Verizon Wireless, which has vaulted ahead in the race to stockpile the industry’s most precious asset.
AT&T has proposed at least 24 deals in the past four months for the rights to spectrum, the radio waves used to transmit mobile-phone calls and data connections. Verizon won U.S. approval on Aug. 23 to buy airwave rights from Comcast Corp. and three other cable companies for $3.9 billion.
In addition to keeping up with Verizon, AT&T’s buying spree is an effort to relieve pressure on its network as data traffic from smartphones and tablets taxes its wireless coverage, said Chris King, an analyst with Stifel Nicolaus & Co. in Baltimore. Acquiring more government licenses to use spectrum gives companies greater capacity on their networks to handle demand.
“We’re seeing AT&T try to get its arms around as much spectrum as they can,” said King, who has a buy rating on AT&T and Verizon Communications Inc. (VZ) shares.
AT&T’s plans would boost its most important spectrum holdings by 62 percent in the biggest 100 U.S. markets, according to John Hodulik, a UBS AG analyst. AT&T’s proposals, which face review by the Federal Communications Commission, include a $600 million purchase of NextWave Wireless, a plan with Sirius XM Radio Inc. (SIRI) to use satellite signals, a radio-wave deal with Comcast and Horizon Wi-Com LLC, and a variety of smaller transactions with regional carriers.
“AT&T is working to unlock unutilized spectrum for mobile Internet usage and adding capacity to keep pace with skyrocketing consumer demand,” said Brad Burns, an AT&T spokesman in Dallas. Mark Wigfield, an FCC spokesman, declined to comment.
AT&T is expected to be the top bidder for airwaves Verizon plans to sell because it will fill in gaps in the company’s spectrum holdings, said Tim Farrar of TMF Associates Inc., a Menlo Park, California-based research firm. Farrar estimated AT&T will pay about $2 billion for the airwaves, which Verizon Wireless proposed to sell as it sought U.S. approval for the deal with Comcast and the other cable companies.
AT&T, the largest U.S. wireless company behind Verizon, tried to address its spectrum needs last year through a $39 billion takeover of the fourth-biggest carrier, T-Mobile USA Inc. Facing opposition by regulators, Dallas-based AT&T killed the deal in December.
Since then, AT&T has said that data traffic is doubling annually, and that demand for spectrum will exceed supply in some markets starting next year. Chief Executive Officer Randall Stephenson has criticized Washington for the capacity constraint, saying in May that a regulatory logjam is keeping deals from going through quickly enough. A month later, Stephenson said the FCC had accelerated its approval of airwave deals.
Verizon’s purchase of cable airwaves gives the Basking Ridge, New Jersey-based carrier a national swath of unused spectrum. The airwave licenses were bought in a 2006 government auction for $2.4 billion by cable companies, including Comcast, Time Warner Cable Inc. (TWC), Cox Communications Inc. and Bright House Networks LLC. The cable companies later abandoned plans to build a high-speed wireless network to compete with Verizon and AT&T.
Verizon snagged the cable deal while AT&T was occupied with the T-Mobile acquisition. When the T-Mobile purchase fell through, AT&T found itself lagging behind its biggest competitor.
“I don’t want to say they are panicked, but they are looking at everything at this point,” said Weston Henderek, an analyst with Current Analysis in San Diego. The cable deal “took away a big option for them. Now they are trying to gobble up as much spectrum as they can and they are going at it more aggressively than they have in the past,” he said.
If AT&T gains approval for all its proposed airwave transactions, including the spectrum Verizon said it would sell, the company could wind up holding 55 megahertz of prime spectrum in the top U.S. markets, according to UBS’s Hodulik. This compares with the 52 megahertz held by Verizon Wireless. Prime spectrum is the type used for high-speed data, such as streaming video to smartphones and tablets.
With almost 200 million customers combined, Verizon Wireless and AT&T have both the greatest need for more spectrum and the most money to buy it. This puts regulators, who are in charge of fostering competition and administering resources, in a bind.
“It’s becoming a national duopoly, and the government will have conflicts over how it balances its two goals,” said Stifel’s King. The government wants to raise as much money as possible on spectrum licenses, and “it’s AT&T and Verizon that will always be the highest bidders,” King said.
The FCC will hear from opponents as it reviews AT&T’s proposals, which don’t have a deadline for approval. AT&T’s larger deals, and particularly its collection of dozens of smaller regional spectrum properties, have raised concerns among competitors and industry watchdogs that the transactions will hurt competition.
“They’re doing it in little drips and drabs,” Berry said of AT&T. “They’re proposing limited deals, but when you look at it cumulatively, it’s a significant aggregation of spectrum.”
AT&T’s purchases, along with Verizon Wireless’s success acquiring cable spectrum, will prevent small and rural carriers from having access to airwaves, Caressa Bennet, general counsel of the Rural Telecommunications Group, a Washington-based trade group for wireless carriers who each serve fewer than 100,000 subscribers, said in an e-mail.
“Consumers will pay dearly for this type of consolidation and have nowhere else to turn,” Bennet said.
The government appears open to letting AT&T buy more airwaves, Paul Glenchur, a Washington-based analyst with Potomac Research Group, said in an interview.
“I don’t think the regulators are going to stop them,” Glenchur said. “Even though there’s concern about the market power of the two largest providers, AT&T and Verizon, I don’t think there’s any policy that they can’t acquire more spectrum.”
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