AT&T to Buy Spectrum From Verizon for $1.9 Billion

AT&T Inc., the second-biggest U.S. wireless carrier, agreed to acquire airwaves from larger rival Verizon Wireless for $1.9 billion, helping bolster its network in a region that covers 42 million people.

The spectrum -- the radio frequencies that let mobile devices operate -- spans 18 states, including California, Texas, New York and Florida, and is located in the 700-megahertz range, AT&T said today in a regulatory filing. The deal is expected to be completed in the second half of 2013.

The company will use the airwaves to build out its next-generation network, which relies on a technology called long-term evolution, or LTE. Dallas-based AT&T plans to reach 300 million people in the U.S. with that network by the end of 2014, providing faster Internet speeds to customers.

Verizon is selling airwaves to its biggest competitor after forging a separate spectrum deal with cable companies. Verizon won regulatory approval last year for a $3.6 billion acquisition of unused airwaves from SpectrumCo, a group including Comcast Corp., Time Warner Cable Inc. and other cable providers.

“AT&T was the logical buyer for this,” said Roger Entner, an analyst with Recon Analytics LLC in Dedham, Massachusetts. “AT&T is already the largest owner of this block of spectrum. This deal gives them the major missing piece to their national coverage.”

Promoting Competition

Verizon said last April that it would sell other spectrum if regulators allowed the company to complete the cable deal. After advocacy groups said the cable transaction would hamper competition in the telecommunications industry, Verizon said divesting its other spectrum would make more capacity available to its rivals.

Even so, the AT&T-Verizon transaction raises concerns as well, said Harold Feld, senior vice president of the Washington-based policy group Public Knowledge. He wants the Federal Communications Commission to block the deal.

“This proposed sale only continues the wireless market’s spiral into a duopoly,” Feld said.

AT&T, led by Chief Executive Officer Randall Stephenson, has been gobbling up airwaves in a bid to catch up with Verizon, which has a more extensive LTE network.

The carrier originally planned to use a proposed $39 billion takeover of T-Mobile USA to get more airwaves. The company killed the acquisition in 2011 in the face of opposition from regulators. Since then, AT&T has been trying to piece together more capacity through smaller deals.

‘National Footprint’

The carrier signed more than 50 spectrum deals last year and plans to do more in 2013, Stephenson said yesterday on an earnings conference call. Today’s transaction follows AT&T’s agreement earlier this week to buy spectrum and subscribers from Atlantic Tele-Network Inc. for $780 million in cash.

For AT&T, the purchase “allows them to get very close to a national footprint” and reap further economies of scale that can help pare equipment costs, Trey Hanbury, a partner at Hogan Lovells and a member of its technology, media and telecommunications practice in Washington, said in an interview. Verizon’s holdings are concentrated elsewhere, Hanbury said.

AT&T shares rose 0.8 percent to $34.02 at the close in New York. The stock climbed 11 percent last year, behind the 13 percent gain of the Standard & Poor’s 500 Index.

Unused Airwaves

Verizon Wireless began selling the 700-megahertz spectrum licenses early last year, the Basking Ridge, New Jersey-based company said today on its website. In addition to AT&T, Grain Management, a Sarasota, Florida-based private-equity firm, is buying some of the airwaves for $189 million.

“Verizon is selling because they weren’t going to build on those airwaves,” said Entner. “Now they can say, ‘We are deploying all the spectrum we have,’ and that gives them a good position in upcoming airwave auctions. The FCC isn’t likely to block them from buying more.”

One of the goals of the process was to improve wireless coverage for rural Americans, Verizon said. Stephens Inc. and Loop Capital Markets LLC advised the company on the sale. The transaction with AT&T needs to be approved by the FCC and the Justice Department, Verizon said.

The FCC will examine the purchase market-by-market to determine whether AT&T would hold more airwaves than allowed in a locality under rules aimed at preventing harmful concentration in the wireless industry, Hanbury said.

Justin Cole, an FCC spokesman, declined to comment.

Regulators are likely to approve the deal, perhaps with requirements to sell some airwaves, Jeffrey Silva, a Washington-based analyst with Medley Global Advisors, said in an interview.

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