AT&T agrees to buy spectrum from rival

Deal with Verizon worth $1.9 billion

An AT&T salesman demonstrates a mobile phone at an AT&T store in Chicago. AT&T has agreed to buy the rights to airwaves from Verizon Wireless to bolster its network.
An AT&T salesman demonstrates a mobile phone at an AT&T store in Chicago. AT&T has agreed to buy the rights to airwaves from Verizon Wireless to bolster its network.

— AT&T Inc., the secondbiggest U.S. wireless carrier, has agreed to acquire the rights to a section of the radio spectrum from larger rival Verizon Wireless for $1.9 billion, helping to 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 Friday in a regulatory filing. Arkansas is not one of the states. The deal is expected to be completed in the second half of 2013.

The company will use the airwaves to build 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 Spectrum Co, 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, Mass. “AT&T is already the largest owner of this block of spectrum. This deal gives them the major missing piece to their national coverage.”

Verizon said in April that it would sell other spectrum if regulators allowed the company to complete the cable deal. After advocacy groups said the cable transaction wouldn’t promote competition in the telecommunications industry, Verizon said divesting its other spectrum would make more capacity available to its rivals.

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 deal in 2011 in the face of opposition from regulators. Since then, AT&T has been trying to piece together more capacity through smaller deals.

The carrier signed more than 50 spectrum deals last year and plans to do more in 2013, Stephenson said Thursday on an earnings conference call. Friday’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, said Trey Hanbury, a partner at Hogan Lovells and a member of its technology, media and telecommunications practice in Washington. Verizon’s holdings are concentrated elsewhere, Hanbury said.

AT&T rose 27 cents to close Friday at $34.02. The stock climbed 11 percent in 2012, marking its third straight year of gains.

Verizon Wireless began selling the 700 MHz spectrum licenses early last year, the Basking Ridge, N.J.-based company said Friday on its website. In addition to AT&T, Grain Management, a Sarasota, Fla.-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 Federal Communications Commission 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.

Business, Pages 31 on 01/26/2013

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