AT&T to Buy Spectrum Licenses - Analyst Blog

AT&T Inc. (T), the #2 mobile service provider in the U.S., will acquire mobile television spectrum licenses for $1.93 billion from Qualcomm Inc. (QCOM).

The spectrum licenses, in the lower 700 MHz frequency band, currently support Qualcomm's FLO TV subsidiary business, which Qualcomm expects to shut down by March 2011. On the other hand, AT&T is expected to enhance its Long-Term Evolution (LTE), a 4G technology, mobile broadband services through the spectrum licenses and will encounter intense competition over the iPhone.

AT&T is the exclusive provider of Apple Inc.'s (AAPL) iPhone since June 2007. The iPhone gave AT&T more subscribers even when the U.S. mobile-phone market was nearing saturation. In the third quarter of 2010, AT&T added 2.6 million subscribers, reaching 92.8 million total subscribers in service, up 29.9% year over year, driven by strong iPhone activation, rapid adoption of smartphones, strong prepaid subscribers and higher growth in connected devices. This represents an all-time high quarterly net addition in the history of AT&T.

The company is increasingly under pressure from Verizon Communication's (VZ) aggressive anti-iPhone marketing campaigns. To strongly challenge iPhone, Verizon launched Motorola's (MOT) Droid smartphones that are based on Google Inc.'s (GOOG) widely popular Android platform. Moreover, AT&T might lose the exclusivity of its strong revenue generator, iPhone in 2011, if Verizon starts selling the device.

The company is pursuing mobile broadband services, which are currently the industry's most powerful growth driver. In mid-2011, AT&T plans to roll out LTE, which will offer a peak speed of 100 Mbps and cover between 70 million and 75 million people by the end of the year.

Sprint Nextel (S) currently extends its 4G network in 68 U.S. markets via Clearwire Corp.'s (CLWR) network. Verizon has recently initiated the launch of its 4G services, which are expected to be available in 39 markets by the end of 2010.

AT&T will gain the rights for wireless spectrum licenses during the second half of 2011. The pending acquisition of spectrum, which covers about 300 million people, will boost the capacity of 4G network. Wireless broadband networks based on LTE will offer data download speeds more than 10 times faster than the current third generation technology.

Consequently, we are currently recommending our long-term Neutral rating supported by the Zacks # 3 Rank (Hold).

 
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