AT&T Bags 700 MHz for $2.5B

AT&T Inc. (NYSE: T) has agreed to buy the 700 MHz spectrum licenses from Aloha Partners LP for $2.5 billion, which will further expand the carrier's U.S. footprint. (See AT&T Buys 700MHz Spectrum.)

One analyst says the deal paves the way for Verizon Wireless to be the likeliest winner of a big portion of 700 MHz spectrum in the upcoming Federal Communications Commission (FCC) auction. With the Aloha deal, AT&T will add 12 MHz of spectrum in the 700 MHz frequency band, which covers 196 million people in 281 markets. The spectrum covers 72 of the top 100 markets in the U.S.

An AT&T spokesman says the operator has not yet decided how it will use this spectrum, but options include mobile TV or cellular voice and data services.

"We'll either use the spectrum for broadcast video or two-way communication," says an AT&T Wireless spokesman. "The determination hasn't been made yet."

A likely scenario is that AT&T uses this spectrum for 3G services. The U.S. operator has led the work to get support for 700 MHz frequencies included in the 3rd Generation Partnership Project (3GPP) UMTS standards and has been supported by Ericsson AB (Nasdaq: ERIC), Nokia Networks , and Alcatel-Lucent (NYSE: ALU), according to Gabriel Brown, chief analyst at Unstrung Insider and author of the new report, "700MHz Technology Options: Reshaping the U.S. Wireless Market." (See NSN Supports 700Mhz and ALU Taps 700MHz.)

"AT&T's experience on deploying UMTS at 850 MHz makes 700 MHz a great fit with its existing network," says Brown. "In particular, the carrier should be able to source attractive 3G handsets that work at both frequencies."

Brown says the price AT&T has paid for this spectrum is "full but fair." He calculates that, at a price of $2.5 billion for 12 MHz of spectrum covering 196 million people, AT&T has paid roughly $1 per MHz per head. (See The 700MHz Impact.)

AT&T's spectrum purchase also alters the playing field in the upcoming 700 MHz auction in the U.S., which has attracted interest from just about every corner of the industry, including from Apple Inc. (Nasdaq: AAPL) and Google (Nasdaq: GOOG). (See 700 MHz: The Fix Is In, Google Pledges $4.6B for Spectrum, and Apple Joining Consortium Bid for 700MHz?) According to Brown, AT&T is now less likely to bid to win the flagship C Block (2x11 MHz) in the 700 MHz auction, for which the FCC has set a reserve price of $4.6 billion. (See Frontline Files Petition and 700MHz Throwdown Looms.)

"AT&T will more likely focus on the regional A and B Blocks [each of which has 2x6 MHz] to complement this newly acquired 700 MHz footprint," says Brown. "That makes Verizon Wireless the most likely winner of the C Block."

An AT&T spokesman said that he could not comment on whether AT&T plans to participate in the 700 MHz auction.

AT&T expects the Aloha transaction to close within the next six to nine months.

— Michelle Donegan, European Editor, Unstrung

The report, 700MHz Technology Options: Reshaping the U.S. Wireless Market, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.

IPobserver 12/5/2012 | 3:01:06 PM
re: AT&T Bags 700 MHz for $2.5B At a purchase price of $2.5 billion for 12 MHz of spectrum covering 196 million people, AT&T has paid around $1 per MHz/PoP or 208 million per MHz.

This compares with an average of $0.5 per MHz/Pop or $150 million per MHz for the AWS spectrum sold at auction last year.

Using a rule of thumb that it costs 50 percent less to deploy a network in 700 MHz than it would in the AWS bands, some premium seems appropriate. On a price per MHz/PoP basis it's close to the $0.96 MetroPCS paid for premium AWS spectrum covering major urban markets.

It's also higher than the reserve prices set by the FCC for the upcoming 700 MHz auction and effectively sets a market rate for that spectrum at $1 per MHz/Pop.
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