AT&T to Buy 39 of Verizon Wireless’s Lower 700 MHz B-Block Licenses

The 39 licenses AT&T is buying from Verizon Wireless cover 42 million people in 18 states, including the Chicago, Cincinnati, Los Angeles and Oklahoma City markets, Verizon Wireless said. Other markets include: Alexandria, Lake Charles and three additional licenses in Louisiana; Billings, Great Falls and two more licenses in Montana; Bradenton and West Palm Beach, Fla.; Casper and one additional license in Wyoming; Fort Collins, Pueblo and one more license in Colorado; Longview, Texarkana, Tyler, Waco and one other license in Texas; Memphis; Rapid City and one more license in South Dakota; Rochester, N.Y.; Youngstown, Ohio; one license each in Idaho, New Mexico, Virginia and Washington state; and four licenses in Utah (http://xrl.us/bocbgt).

The deals announced Friday will complete Verizon Wireless’s sale process for its lower 700 MHz A-block and B-block licenses, which it agreed in April to sell if the FCC approved its purchase of AWS licenses from SpectrumCo and Cox (CD April 19/12 p1). Verizon Wireless said it had previously sold or reached agreement to sell the other 35 of its 77 lower B-block licenses to 10 entities -- seven purchased licenses during the sale process and three bought licenses prior to the sale. “We will deploy any licenses we don’t sell for mobile broadband capacity,” a Verizon Wireless spokeswoman told us.

Public Knowledge urged the FCC to deny the deal, arguing it would not benefit consumers or wireless market competition. “If the FCC wants to see investment in competing carriers, the FCC needs to deny this transaction,” said Harold Feld, Public Knowledge senior vice president, in a statement. “This proposed sale only continues the wireless market’s spiral into a duopoly between AT&T and Verizon, and is obviously not in the public interest. AT&T already has swathes of spectrum and multiple pending transactions to acquire more. This acquisition would add insult to injury for smaller providers that provide a competitive alternative to AT&T and Verizon."

The Competitive Carriers Association also urged careful FCC scrutiny of the deal, arguing that “the negative impact on the entire competitive wireless marketplace” should factor into the commission’s review. “Over the past several months, AT&T and Verizon have been quietly purchasing bits and pieces of spectrum from smaller carriers,” said CCA President Steve Berry. “Many of these carriers had hoped to deploy 4G LTE on this spectrum, but without regulatory relief on key policy issues, carriers have no choice but to sell their spectrum to stay afloat in this heavily concentrated market. For the industry to become competitive, every carrier must have the opportunity to access spectrum."

Free Press said it’s still reviewing the transaction’s potential impact. “However, the continued consolidation of our nation’s most valuable public airwaves into the hands of just two companies highlights precisely why the [FCC] needs to quickly conclude its spectrum aggregation proceeding, and adopt safeguards that prevent excessive concentration of licenses, as Congress directed,” said Derek Turner, Free Press research director. “This will ensure competition can thrive to the benefit of all consumers."

Opposition to the deal bears watching, but the FCC is likely to approve the transaction, said Paul Gallant, a telecom policy analyst with Guggenheim Partners, in an emailed note. “AT&T currently holds an average of 118 MHz in U.S. markets. Acquiring another 12 MHz (6x6) in most markets will not put AT&T above the FCC’s current 145 MHz spectrum screen,” he said. “The FCC has almost always approved wireless deals in which the acquirer would remain below the spectrum cap.” The FCC may seek to put conditions on the deal; when the commission approved AT&T’s purchase of 6 MHz of spectrum from Qualcomm, it required AT&T to accept technical limits on its use of the spectrum, Barry said. “One possible condition is buildout deadlines for AT&T’s new spectrum,” he said. “Recall that the FCC imposed buildout deadlines on Verizon’s purchase of unused spectrum from the cable companies last summer."

Everett Ehrlich, former undersecretary of Commerce during the Clinton Administration and current president of ESC Company, praised the AT&T/Verizon deal as “a good example of the benefits of an active, liquid market in spectrum. The buyers -- as well as those entities leasing C block spectrum from Verizon -- will use this asset to bring higher quality service more rapidly to consumers. The FCC has already taken sound initial steps towards facilitating this type of transaction and should clear a path towards making them as commonplace as transactions for any other type of asset."

The deal represented AT&T’s second set of announced spectrum acquisitions this week. The AT&T said Tuesday it plans to buy former Alltel assets from Atlantic Tele-Network -- including Alltel’s spectrum licenses, which are mostly on the 850 MHz band -- for $780 million. AT&T made spectrum its “No. 1 priority” during 2012, CEO Randall Stephenson said Thursday during a conference call with investors to discuss the carrier’s Q4 earnings (see related note in today’s issue). AT&T has signed nearly 50 spectrum deals, increasing its average national spectrum by about a third, he said, saying Friday the carrier closed its purchase of NextWave Wireless, which gives AT&T AWS spectrum covering 6 million people and Wireless Communications Service (WCS) spectrum covering 212 million people (CD Aug 3 p1). The carrier would continue to make deals aimed at “filling in some holes” in its spectrum holdings over the course of the year, with the expectation that its next major spectrum acquisitions would come from the spectrum incentive auctions currently set for 2014, Stephenson said.

AT&T’s purchase of the lower 700 MHz spectrum was largely expected, particularly given the carrier’s existing position on the 700 MHz B- and C-blocks, said Wells Fargo analyst Jennifer Fritzsche in an email to investors. “It would have been disappointing to see this spectrum go to another player when the dominant trend in spectrum has been the consolidation of the bands,” she said. “With this 700 MHz spectrum, AT&T will be able to deploy a 10x10 MHz LTE (B&C combined) network in a larger footprint."

The deal could also raise the value of the Dish Network’s 6 MHz holdings on the 700 MHz band, said Wells Fargo analyst Marci Ryvicker in an email to investors. Wells Fargo believes the amount AT&T is paying for the Verizon Wireless licenses raises the value of Dish’s spectrum on the band to $5.3 billion, vs. its initial estimate of $1.4 billion. “We have heard investor concern that [Dish] is ‘running out of options’ but we think the prices implied by both today’s announcement and [AT&T’s] intended purchase of Alltel ... just shows that [Dish] is sitting on an extremely valuable asset,” she said.

The AT&T-Verizon deal helps slightly narrow AT&T’s “materially worse spectrum position” against Verizon Wireless, but that carrier still holds the advantage, said New Street Research analyst Jonathan Chaplin in an email to investors. “All told, AT&T will have 26 MHz that they can deploy for LTE immediately and 28 MHz of WCS which we believe they can deploy in late 2015, compared to Verizon, who now has 35 MHz that is all immediately deployable,” he said. “Even after this transaction, AT&T will have less spectrum per sub than all three national carriers.”