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Once again, AT&T is trying to acquire another cell company, but unlike the ill-fated T-Mobile deal, this time AT&T will probably be able to pull it off. Chances are that you remember when Verizon Wireless bought Alltel a few years ago as a way to expand coverage. But 105 of those Alltel markets had to be divested as part of the deal.
AT&T bought most of those divested markets at the time, and the rest of them went to Atlantic Tele-Network (ATN), a company that operates a number of small regional carriers in the United States and elsewhere. Part of what ATNI owns and is proposing to sell to AT&T is the remains of the Alltel network in six Southern and Midwestern states.
This deal is far different than the attempt to acquire T-Mobile, and those differences make it likely that AT&T will face little opposition. The current Alltel covers primarily rural areas where AT&T’s coverage is at best, very thin. Getting broadband coverage in rural areas is consistent with the FCC’s National Broadband Plan, and having that coverage from a major player is something the FCC wants. In addition, it provides real competition to Verizon Wireless in these areas, which the FCC and the Justice Department also want.
Of course, AT&T wants to buy Alltel for other reasons besides those rural customers. Alltel owns spectrum in the 700MHz, 850MHz and 1900MHz bands where AT&T already operates. While Alltel customers are currently living in a CDMA world, all this means is that the company will have to provide a transition plan and eventually provide new GSM handsets to customers as the network moves to the new technology.
For Alltel customers, this means that they’ll have access to AT&T’s handsets, including the iPhone, and that they’ll be able to roam over a much broader part of the world. For AT&T customers, it will mean that they’ll have dramatically better coverage in states where Alltel is currently a major carrier. T-Mobile customers may also see some benefits since AT&T and T-Mobile have roaming agreements in some of the areas Alltel currently serves.
Because Alltel is relative small, the financial impact of acquiring the company is unlikely to have much of an effect on AT&T’s bottom line. Neither is the relatively small cost of transitioning the existing 585,000 subscribers and acquiring the retail locations likely to have an adverse effect on AT&T. ATNI will keep the remainder of its wireless companies and will be able to use the $780 Million to invest in its existing network.
AT&T Buys Alltel as Carriers Rush to Snap Up Wireless Spectrum
So is it really a win-win for both sides? At this point it seems to be. So far no opposition has surfaced, even from groups that frequently oppose AT&T on almost everything they try to do. While it’s too early to know what the reaction of the regulatory folks will be, it seems that the chances of this deal being approved are fairly high. The FCC approved AT&T buying the parts of Alltel that were divested by Verizon Wireless years ago. There doesn’t seem to be much likelihood that they’ll fight the deal to buy the rest of it.
But there’s more to this deal than just a fairly minor acquisition by AT&T. What you’re seeing here is likely the wave of the future until the FCC frees up more spectrum, and that won’t happen for a while. The FCC has already announced plans to auction off new spectrum in the 1900MHz band, but government users occupy those frequencies, and the spectrum can’t be sold until the current users are located to other frequencies.
Meanwhile, AT&T is in the midst of a major spectrum shift, but it can’t complete that shift without more spectrum. By buying the spectrum Alltel owns, AT&T solves part of its spectrum crunch. But Alltel won’t solve the whole thing.
In fact, the chances are very good that you’ll see more moves by AT&T to stitch together a spectrum map that gives it the bandwidth it needs. To accomplish this, AT&T will need to make piecemeal acquisitions of spectrum from wherever it can find it.
But this need to acquire spectrum isn’t just an AT&T story. You’ll remember that Sprint announced it was planning to buy the part of Clearwire it doesn’t already own, and that Dish has announced a plan to buy Clearwire out from under Sprint. Both companies need spectrum badly enough to wage financial war over it.
And it won’t stop there. Small carriers are the low-hanging fruit of spectrum acquisition, which is why T-Mobile announced its plans to acquire MetroPCS in a move similar to the AT&T acquisition of Alltel. But there’s also wireless spectrum in the hands of noncarriers, which is why an ongoing effort is happening to buy spectrum from cable television companies, for example.
Until the FCC frees up more spectrum that carriers can use for LTE, the small acquisitions you’re seeing are the direction of the wireless business. Larger carriers will gobble up smaller regional carriers where it makes sense. Right now, if there’s a real winner in all of this, it’s the stockholders of those small regional carriers who may have found the path to true riches.