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January 22, 2013

AT&T Buying Alltel Spectrum and Subscribers for $780 Million

AT&T, the Dallas, TX-based second largest U.S. wireless services provider, found one way to get more spectrum and increase market share with the statement that it will be purchasing the spectrum and subscribers of Atlantic Tele-Network Inc., which operates in six southern and Midwestern states under the Alltel brand, for $780 million in cash.  This will increase the AT&T subscriber base of by 585,000 new customers.

AT&T is getting quite a bit in the deal. The company says it includes the licenses, network assets and retail stores. The real attraction here, along with increasing subs and network reach is the spectrum. Located in the 700-, 850- and 1900-megahertz bands, these frequencies are the same used by AT&T nationwide thus making the value proposition to possible skeptical Alltel subscribers attractive as they will have an easy migration with some added flexibility when out of their home areas.  

Turned down by regulators two years ago in their attempt to expand through the acquisition of T-Mobile’s USA assets, AT&T has made no secret of its desire to both overtake arch rival Verizon in the U.S., and there are even rumors that surfaced recently in the Wall Street Journal, that AT&T is looking buying one of the large European wireless carriers. Indeed, speculation centers around potential targets: Royal KPN NV of the Netherlands, up and coming Everything Everywhere in the UK since valuations on European wireless companies are particularly attractive at the moment.

Another aspect of this deal is not just the almost maniacal focus on Verizon, who is on a air crab of its own in the U.S. having scooped up cable giant Comcast’s spectrum and customers for roughly $3.6 billion not that long ago, but also relate to AT&T guarding its flanks from at reinvigorated Sprint who is going to be quite aggressive with its Softbank money.  

AT&T expects the Alltel purchase to be completed in the second half of 2013, assuming it’s approved by the Federal Communications Commission (FCC) and the Department of Justice (DoJ). The transaction won’t significantly affect cash flow or dilute earnings per share, AT&T said.

This is one of those interesting cases of “as the world turns.” It demonstrates both the competitive forces at work in the U.S. that are driving industry restructuring as the race to capture and keep customers intensifies and markets roil as a result of declining margins, new data plans, customer churn, the need to change the business model with phone suppliers, and what to do about the increasing hegemony of the cable companies as they use Wi-Fi and partnerships to capture high-value and volume customers to use their networks as the wireless connectivity network of choice. 

In short, the U.S. wireless companies have a lot on their platters and a lot of fronts on which they need to fight. The valuation of the Alltel assets is going to set a new bar for further acquisitions in the space, and could be a harbinger of where M&A interests in the space go next. Will it be more consolidation in the U.S.? Will there be a lurch toward Europe despite questions about European regulators thinking U.S. ownership of critical assets is probably verboten? Given what is at stake it is likely to be both, particularly for AT&T whose use of GSM technology makes a European adventure tantalizing. Only time will tell obviously, but in the meantime, if you are an Alltel customers this is likely to be good news. More varied services and pricing plans, and an expanded reach. 

Edited by Stefania Viscusi

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