AT&T in Spectrum Deal with Verizon

U.S. telecom giant AT&T Inc. ( T - Analyst Report ) has entered into an agreement with Verizon Wireless to acquire spectrum licenses. Verizon Wireless is a venture between Verizon Communications ( VZ - Analyst Report ) and Vodafone Group Plc ( VOD - Analyst Report ) .

Per the deal, AT&T will shell out $1.9 billion and offer Advanced Wireless Services (AWS) spectrum licenses in five markets to Verizon. In exchange Verizon will hand over 39 lower 700 megahertz (MHz) licenses to AT&T, covering 42 million people in 18 states including major territories such as Chicago, Los Angeles and Miami.

After the deal to acquire T-Mobile USA for $39 billion failed to succeed due to regulatory opposition, AT&T has been eyeing various spectrum transactions. This acquisition comes close on the heels of AT&T’s plans 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. These operations include spectrum licenses, retail stores and network assets

AT&T aims to enhance its high-speed wireless network in order to generate more profits from the surging demand for mobile Internet services for smartphones, tablets and other devices. The company is on track to deploy 4G Long-Term Evolution (LTE) services to people as fast as possible and achieve the set target to connect 300 million people in the U.S. by 2014 end.

Along with this acquisition, AT&T will sell a single AWS license to Grain Management. The former will also lease 700 MHz spectrum from Grain Management across three markets.

On the other hand, the country’s largest carrier – Verizon – is parting with the spectrum that it was not using to gather funds for buying a big belt of spectrum from a consortium of cable firms.

However, this deal is under the scrutiny of various regulatory bodies that have expressed concerns over the concentration of high-class wireless signal airwaves in the hands of the two top telecom companies in the U.S.

The deal is yet to receive approvals from the Federal Communications Commission and the Department of Justice. Both AT&T and Verizon expect the transaction to be closed in the latter half of 2013.

We currently, have a Zacks Rank #3 (Hold) on AT&T and Verizon.