AT&T is cobbling together about $2.6 billion in deals for airwaves to catch up with Verizon Wireless, says Bloomberg, proposing at least 24 deals in the past four months for the rights to spectrum, according to Chris King, an analyst with Stifel Nicolaus.
AT&T plans to buy Verizon 700 MHz spectrum in the lower “B” and “C” block that it’s unloading as the result of the FCC approval of Verizon’s AWS spectrum purchase from cable operators.
Such a spectrum purchase by AT&T would boost their most important spectrum holdings by 62 percent in the biggest 100 U.S. markets, according to John Hodulik, a UBS AG analyst. AT&T is expected to be the top bidder for airwaves Verizon plans to sell because it will fill in gaps in the company’s spectrum holdings.
The Lower 700 A, B, and C blocks are paired 6 MHz channels. AT&T offers LTE service on B&C blocks to compete with Verizon’s nationwide chunk in the Upper 700 MHz band (also called a “C” block) which is twice as wide (12 Mhz x 2). With guard bands, AT&T’s lower 700 MHz channels are 10 MHz wide, while Verizon’s upper 700 MHz channels are 20 MHz wide.
AT&T wants to avoid the “A” block since it is close to some television channels, requires additional filtering, and would strengthen their smaller competitors by allowing roaming. Currently, AT&T’s LTE phones won’t work (or roam) on the “A” block spectrum, used by many rural carriers.
Verizon bought a nationwide footprint on the upper 700 MHz band. AT&T, in contrast, has to piece together a nationwide service using dozens, even hundreds, of regional and local 12MHZ spectrum licenses.
AT&T’s proposals, which face review by the FCC, also include a plan with Sirius XM Radio to use the “A” and “B” blocks in the 2.3 GHz spectrum, a $600 million purchase of NextWave Wireless (holding mostly the soon to be decommissioned “C” block), a deal with Comcast and Horizon Wi-Com (in the 2.3 GHz band), and a variety of smaller transactions with regional carriers.
According to AT&T’s FCC filing, the carrier would acquire between 5 and 30 MHz of WCS spectrum from NextWave Wireless in 476 cellular market areas, achieving a maximum of 30 MHz WCS spectrum. AT&T wants between 10 and 25 MHz of WCS spectrum from Comcast in 149 markets and 10 MHz of WCS spectrum from Horizon Wi-Com in 132 markets.
If AT&T gains approval for all its proposed airwave transactions, including the 700 MHz spectrum Verizon plans to sell, the company could wind up holding 55 megahertz of prime spectrum in the top U.S. markets, according to UBS’s Hodulik. This compares with the 52 megahertz held by Verizon Wireless. Of course, most people wouldn’t call 2.3 GHz, “prime spectrum” and AT&T is unlikely to buy any “A” block spectrum in the 700 MHz band.
Hodulik expects that AT&T is paying a total of less than $1 billion for the three deals with NextWave, Comcast, and Horizon Wi-Com. By deduction, that would leave some $1.6B left for the 700 MHz, “A” and “B” blocks. Verizon’s B-block spectrum on 700 MHz includes cellular markets in Los Angeles, Chicago and Miami, among others.
AT&T would need to cobble together nearly ALL the local and regional “B” & “C” licenses in the lower 700 MHz band to even achieve parity with Verizon, which has twice the spectrum in their nationwide “C” block. Worse, AT&T has virtually no AWS spectrum (1.7/2.1 GHz). Verizon now owns AWS spectrum for LTE expansion nationwide.
A few more B block licenses on the 700 MHz band and a problematic 2.3 GHz band won’t give AT&T air superiority over Verizon.
The FCC will hear from opponents as it reviews AT&T’s proposals. Smaller regional operators have raised concerns along with industry watchdogs that the transactions will hurt competition.
That’s “a heck of a lot of beachfront property,” said Steven Berry, president of Rural Cellular Association, a Washington-based trade group whose members include T-Mobile, a unit of Bonn-based Deutsche Telekom.
It will prevent small and rural carriers from having access to airwaves, Caressa Bennet, general counsel of the Rural Telecommunications Group, a Washington-based trade group for wireless carriers who each serve fewer than 100,000 subscribers.