Fed OKs AT&T-Qualcomm Spectrum Deal

Zacks Investment Research
updated | Zacks.com

The second-largest U.S. mobile service provider AT&T Inc. (NYSE:T) finally received approval from the Federal Communications Commission (FCC) to purchase $1.93 billion mobile television spectrum licenses from the U.S. chipmaker Qualcomm Inc. (NASDAQ:QCOM).

The purchase of spectrum in the lower 700 MHz frequency band would boost the company’s capacity to offer 4G Long-Term Evolution (LTE) mobile broadband services. AT&T’s LTE services are currently available in nine cities namely Atlanta, Chicago, Dallas, Houston, San Antonio, Boston, Washington D.C., Baltimore and Athens. The company expects to cover approximately 15 markets and 70 million Americans by the end of this year and the entire American populace by 2013.

As AT&T lost its exclusive hold to its largest rival Verizon Communication (NYSE:VZ) in February this year, we believe the transaction would aid AT&T to improve the quality of Apple Inc.’s (NASDAQ:AAPL) iPhone service. Now, the iPhones (4 and 4S) are marketed by the top three wireless operators given the growing demand for the product.

The U.S. mobile operators are progressing fast to acquire more spectrum licenses in order to meet the rapidly growing smartphones demand. We believe acquiring new spectrums would provide AT&T a competitive edge over Verizon and the third mobile service provider Sprint Nextel (NYSE:S). The largest U.S. mobile service provider Verizon plans to buy radio-spectrum licenses from Cox Communications and a group of cable companies, including Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and Bright House Networks.

The FCC approval comes within a week after AT&T dropped its $39 billion bid to acquire T-Mobile USA, a Deutsche Telekom unit. AT&T was trying to gain regulatory nod since the deal was announced in last December. The FCC delayed the review citing regulatory concerns relating to unfair competition, layoffs, higher prices, lower innovation and investments in the industry.

The transaction is expected to close in the coming weeks.

We prefer to maintain our long-term Neutral recommendation on AT&T. The company retains the Zacks # 3 (Hold) Rank for the short term (1–3 months).

 
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