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UPDATE: AT&T, Verizon Agree to Swap Wireless Assets

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NEW YORK (Dow Jones) AT&T and Verizon Wireless said on Tuesday they have agreed to swap wireless assets as they shore up their positions ahead of the spectrum auction early next year.

AT&T and Verizon Wireless are both divesting assets to satisfy regulatory requirements following their respective acquisitions. It's illustrative of the consolidated industry that the rivals had few options but to deal with each other.

"It's eye-popping to see mortal enemies doing a deal like this," said Patrick Comack, an analyst at Zachary Investment Research. "There aren't too many people left to deal with. All the rural guys are sellers, and not in buying mode."

While Sprint Nextel has struggled with subscriber growth and Deutsche Telekom's T-Mobile USA deals with upgrading its network, Verizon Wireless and AT&T have been scooping up wireless assets.

Verizon Wireless has a pending $2.7 billion acquisition of Rural Cellular. AT&T, meanwhile, agreed to acquire privately held Edge Wireless Holding late Monday, which followed the $2.8 billion purchase of Dobson Communications in mid-November and the pending $2.5 billion purchase of wireless spectrum from Aloha Partners. The company said on Tuesday that it would sell its Cellular One brand to Trilogy Partners.

Under the swap, AT&T will get former Rural Cellular properties, licenses, assets and subscribers. Spokesman Michael Coe said the deal enhances its coverage in parts of New York, Kentucky, Vermont and Washington.

Verizon will get former Dobson assets in Kentucky, spectrum in a number of markets and cash. Verizon spokeswoman Robin Nicol said in an emailed statement that the swap had to do with divesting assets purchased from Rural Cellular that overlapped with existing business in Vermont, New York and Washington.

Both spokespeople said the asset swap had nothing to do with the upcoming FCC auction. Timing had a lot to do with striking a deal. Comack said that Monday's Federal Communications Commission deadline to commit to the spectrum auction restricts participants from making deals with each other. That's why AT&T specifically said the transactions were signed on Monday, he said.

Despite the many moves by both wireless carriers, analysts don't believe they should be taken as an indication of what's to come during the auction.

The assets are too small to impact the decisions made for the wireless auction. It's more about the two carriers being opportunistic in how they divest their assets to each other.

"It signifies strategically the ongoing interest in consolidating the industry and filling whatever small holes are out there," said William Power, an analyst at Robert W. Baird & Co.

Both carriers are looking at the 700 mhz swath of spectrum available in the auction as a powerful resource for use in future network deployments. The spectrum, which comes from analog TV broadcasts that are migrating to digital, can travel long distances and require less network equipment to transmit.

"I would expect both entities to look at the spectrum aggressively," Power said, adding he believes AT&T and Verizon Wireless will be the two largest bidders in the auction.

The largest two wireless service providers have been fierce competitors in clashing for customers. AT&T, the largest player with 66 million subscribers, touts Apple's iPhone as an attraction. Verizon Wireless, with 64 million subscribers, boasts a more reliable network.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires

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