AT&T to Acquire Alltel Operation

U.S. telecom giant AT&T Inc. (T - Analyst Report) announced that it has agreed to buy the remaining portion of Alltel’s wireless operations from Atlantic Tele-Networks Inc. (ATNI - Snapshot Report) for a cash consideration of about $780 million.

AT&T will be purchasing spectrum licenses, retail stores, network assets and will get 585,000 subscribers from Alltel spread across six states, particularly in the South and Midwest U.S. The deal is subject to approval by the Federal Communication Commission (FCC) and Justice department and AT&T expects to close the deal in the second half of 2013.

Alltel used to operate in 34 U.S. states before it was bought by Verizon wireless, for $28.1 billion on January 2009, making it the largest wireless carrier in the US. However, in 2010, Verizon sold its business in six states to Atlantic for $223 million.

Higher proliferation of smartphones and tablets has increased the demand for online games and HD movie downloads, which in turn has fueled the demand for spectrum. AT&T started addressing the spectrum issue with a failed attempt to buy T-Mobile USA for $39 billion in December 2011.

AT&T signed multiple deals in 2012, including a $600 million deal to acquire NextWave Wireless. The company also signed a radio wave deal with Comcast Corporation (CMCSA - Analyst Report) and Horizon Wi-Com LLC to meet its demand for spectrum going forward.

We believe the transaction is highly accretive to AT&T as it will allow the company to improve the mobile Internet services in the rural areas where customers are facing reduced network speed. Most importantly, the acquisition will aid the company to snap up the much needed spectrum to match Verizon Communication Inc.’s (VZ - Analyst Report) spectrum capacity.

Although the acquired spectrum in the 700, 800 and 1500 MHz matches with AT&T’s network, the second largest carrier in the U.S. needs to convert the cell towers of Alltel as it uses CDMA (Code Division Multiple Access) technology while AT&T uses GSM (Global System for Mobile) technology.

We currently, maintain a short-term Zacks Rank #3 (Hold) on AT&T Inc.