UPDATE: AT&T to Pay $2.5 Billion for Large-Market Wireless Licenses

AT&T agreed Tuesday to pay $2.5 billion in cash to acquire additional wireless licenses in the nation's largest markets, a possible signal that the telecom giant intends to further develop its mobile video options.

The purchase also comes months ahead of a government auction of similar spectrum, raising questions about how active AT&T might be in that upcoming sale.

San Antonio-based AT&T, the nation's largest phone company, obtained the spectrum in the range of 700 megahertz from Aloha Partners LP, which holds licenses that cover 196 million people in 281 markets, including the 10 largest and 72 of the top 100.

"We believe that AT&T acquired the Aloha spectrum in order to make one of the first moves on the spectrum chess board, and to ensure acquisition at a price it viewed as attractive and that it could control without the variability of an auction," Soleil Securities analyst Gregory Lundberg said.

AT&T declined to specify what it would do with the spectrum or how it would affect its plans for the auction. AT&T expects to close the Aloha deal within six to nine months.

"Customer demand for mobile services, including voice, data and video, is continually increasing," said Forrest Miller, AT&T group president, corporate strategy and development. "Aloha's spectrum will enable AT&T to efficiently meet this growing demand and help our customers stay connected to their worlds."

The purchase gives AT&T 12 megahertz of spectrum in the 700-megahertz range. The 700-megahertz block of airwaves is especially valuable because signals can travel long distances and more easily penetrate walls and other obstacles. Networks that operate in the 700-megahertz range are also less expensive to build than in other portions of the spectrum.

"This spectrum is structured to provide mobile broadcast services similar to that provided by MediaFLO, owned by Qualcomm," BMO Capital analyst Peter Rhamey said, noting that AT&T already has an agreement with MediaFLO to provide several channels of mobile video.

Rhamey said the purchase may make AT&T less aggressive in the upcoming government auction; however, Bear Stearns analyst Michael McCormack said it is unclear how the Aloha spectrum, which covers 60% of the U.S., will affect AT&T's role.

"AT&T could still opt to participate in order to augment its position," McCormack wrote in a research note to investors. "It may also elect to participate in order to keep pricing competitive."

He added that AT&T's price tag is "reasonable" because of the spectrum's attractiveness.

The upcoming auction is perceived as a bigger deal for Verizon Wireless. AT&T, thanks in part to its acquisition of BellSouth Corp., is seen as being spectrum-heavy, even after being required to divest some of it to win regulatory approval for the deal. It's been speculated that in the upcoming auction, AT&T may seek smaller chunks of airwaves in a lower band to fill gaps in its geographic footprint.

The portion of the airwaves being auctioned off has been used for decades by television broadcasters, which are returning it to the federal government as part of their move to a digital signal.

Big phone companies such as AT&T and Verizon Wireless - jointly owned by Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD) - plan to use the spectrum to deliver bandwidth-intensive applications, such as video, to mobile phone users over high-speed wireless connections.

Even industry outsiders such as Google are pondering whether to bid for some of the 700-megahertz spectrum. Partly because of Google's prodding, the Federal Communications Commission is requiring the winner of about one-third of the spectrum being sold to let consumers buy any cellphone or other wireless device and use it on the broadband network that is eventually built.

The spectrum AT&T purchased Tuesday isn't beholden to those new "open-access" rules, although Bear's McCormack doesn't think the open-access issue drove this transaction.

"It's more that AT&T felt this was a great spectrum to deal with their triple-screen strategy without having to go through a lengthy bidding process," McCormack said, referring to Internet, video and phone services.

AT&T's wireless unit has the most subscribers in the country at more than 60 million. The company is also the authorized service provider for Apple's iPhone.

In June, AT&T agreed to buy wireless carrier Dobson Communication for about $2.8 billion, another step in AT&T's effort to expand its network coverage into rural areas.

Providence, R.I.-based Aloha, the parent of broadcast mobile TV outlet Hiwire, had expressed plans to launch a nationwide mobile TV service once it struck a deal with a major partner in the wireless, cable or Internet space. Its strategy had been closely watched by telecom and media players.

Hiwire has been running a trial with Deutsche Telekom's T-Mobile USA unit in Las Vegas.

-By Steven Russolillo, Dow Jones Newswires; 201-938-2205; steven.russolillo@dowjones.com

(Corey Boles, Jeffry Bartash and Kevin Kingsbury contributed to this report.)

(END) Dow Jones Newswires

Posted to the site on 9th October 2007