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AT&T said on Friday it will buy 700 MHz spectrum from Verizon Wireless for $1.9 billion in cash, plus spectrum licenses in five markets.

The agreements covers the following transactions:

  • The AT&T acquisition includes spectrum in the 700 MHz, 850 MHz and 1900 MHz bands and is largely complementary to AT&T’s existing network.
  • ATNI currently operates a retail CDMA network for its subscribers in these areas. AT&T expects that as it upgrades the network, ATNI customers and existing AT&T customers who roam in these areas will enjoy an enhanced mobile Internet experience.
  • Verizon Wireless will sell 39 lower 700 MHz B Block licenses to AT&T in exchange for a payment of $1.9 billion, and the transfer by AT&T to Verizon Wireless of AWS (10 MHz) licenses in certain western markets, including Los Angeles, Phoenix, Fresno and Portland, Oregon.
  • Verizon Wireless will sell lower 700 MHz B Block licenses covering the Charlotte, Greensboro and Raleigh-Durham markets in North Carolina to Grain Management, a Sarasota, Florida-based private equity firm that invests in the telecommunications sector, in exchange for a payment of $189 million.
  • Verizon Wireless will lease from Grain Management an AWS license covering Dallas, Texas, which Grain is acquiring from AT&T.

The licenses will cover a population of 42 million people in 18 U.S. states. It expects to close the deal, which is subject to regulatory approval, in the second half of 2013.

Verizon agreed to sell its Lower 700 MHz A and B Block spectrum if the FCC approved its $3.9 billion purchase of nationwide AWS spectrum cable companies. The FCC approved the deal in August. The agreements signed today will complete the lower 700 MHz sale process for Verizon.

Verizon currently uses a 20 MHz block in the Upper C Block of the 700 MHz band for LTE. It now covers 273.5 million people with LTE, or roughly 89 percent of the U.S. population. It will expand LTE service in its AWS spectrum (1.7/2.1 GHz) that it bought from cable operators.

“We expect to take our LTE build to 250 million PoPs by the end of 2013,” said AT&T CEO Randall Stephenson on the company’s fourth quarter earnings call Thursday. “We’re at about 174 million now, we’re ahead of where we said we would be.” AT&T revealed late last year it would increase its LTE coverage to 300 million POPs by the end of 2014.

In August, AT&T agreed to buy 2.3 GHz spectrum from NextWave Wireless holdings for $50 million and $550 million of debt. AT&T is clearly abandoning the AWS band in favor of expanding 700 MHz and 2.3 GHz. That could still leave room for Dish at 2.1 GHz.

Earlier this week AT&T said it will buy Alltel 700 MHz spectrum for $780 million which includes spectrum in the 700 MHz, 850 MHz and 1900 MHz bands.

AT&T will then have more than 20 MHz, mostly in the lower 700 MHz B & C blocks, which they can deploy for LTE immediately and 20 MHz of WCS (they can’t use spectrum close to satellite radio) which they can deploy in late 2015, compared to Verizon who now has 35 MHz in the 700 MHz and AWS bands (1.7/2.1 GHz) that is all immediately deployable. AT&T paid a lot more for their spectrum but will have still less spectrum per sub than all three national carriers. Sprint, with Clearwire, has the most.

AT&T’s Q4 2012 earnings showed overall quarterly revenues of $32.6 billion (an increase of 0.2% year over year), with record smartphone sales of 10.2 million devices, activating 8.6 million Apple iPhones.

T-Mobile USA has merged with MetroPCS which is expected to provide at least 2×20 MHz of 4G LTE in many areas. MetroPCS and T-Mobile use AWS spectrum (1.7/2.1 GHz) making it easier for the two companies to combine their resources.

Meanwhile, maneuvering for the 600 MHz broadcast television auction next year, is on going. That auction, which is expected to generate some $12 billion, will open up some 120 MHz of spectrum from TV channels Channel 31 to Channel 51.

Funds will be set aside to move broadcasters to a lower frequency (below channel 31). Broadcasters may also choose to abandon their current broadcast transmitter and tower for a one time payment. It that case, they would piggyback on another local station, multiplexing as a “dot” channel.

Negotiating behind the scenes, the NAB, major wireless carriers and chip makers have found common ground on how the 600 MHz TV band should be organized in the wake of the FCC’s upcoming incentive auction.

Those principals include:

  • Maximize the amount of paired spectrum above TV 37 (rely on supplemental downlink configurations where spectrum is cleared but pairing options are not viable);
  • Rely upon 5 MHz spectrum blocks as building blocks for the band plan;
  • Incorporate a “duplex gap” or spacing between uplink (mobile transmit) and downlink (base transmit) of a minimum of 10 MHz, but no larger than technically necessary;
  • Avoid broadcast television stations in the duplex gap;

In the joint letter to the FCC (pdf), the NAB, AT&T, Verizon and T-Mobile, Intel and Qualcomm asked the commission to adopt those “core set of band plan principles” that would maximize the auctioned spectrum, avoid interference between broadcast and wireless services and support the performance and size of smart phones and tablets.

More than 100 MHz will soon to be available in the 600 MHz TV band for macrocells. By combining that spectrum with 40 MHz of Dish spectrum (at 2.1 GHz), Clearwire/Softbank spectrum (at 2.6 GHz), or even unlicensed 3.5 GHz for small cells, there appears to be the distinct possibility of several new LTE entrants in the US cellular market, competing with AT&T, Verizon, Sprint and T-Mobile.

Competition is good. But it won’t be business as usual.

Perhaps investment bankers, foreign telcos, internet companies like Google, Apple and Facebook, power and utility companies like General Electric, and all manner of fast buck artists like Kim Dotcom will pile on in the next 18 months. Wild Wild West.

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