AT&T/NextWave Deal Announced, Faces Small Carrier Opposition

AT&T agreed to pay $25 million for NextWave, plus another payment of up to $25 million, and $550 million to retire NextWave’s debt. In return, AT&T gets AWS spectrum covering 6 million people and WCS spectrum covering 212 million. AT&T already owns an average of 8 MHz of usable spectrum in the WCS band nationwide in the A and B blocks, which will be used for LTE. The NextWave buy would give AT&T an additional 5 MHz.

The NextWave licenses are in some of the most important U.S. markets. NextWave owns the WCS A block in New York, Chicago, Houston and Detroit/Ann Arbor, among the major markets. AT&T and NextWave also own a majority of WCS C and D block licenses, which would be sacrificed under the AT&T/XM Sirius proposal, leaving guard bands for the Satellite Digital Audio Radio Service. WCS is currently not part of the spectrum the FCC uses in considering spectrum transactions, but could be added if the FCC approves the AT&T/XM Sirius joint proposal, industry officials said.

Rural Cellular Association President Steve Berry was sharply critical of the transaction. “AT&T’s spectrum grab continues, and it is off the charts,” Berry said. “Literally, this spectrum isn’t even factored into the FCC’s spectrum screen. Clearly, the spectrum screen is broken, and the FCC must take steps to ensure an out of control spectrum aggregation policy is addressed.” Berry said the NextWave buy “along with AT&T’s near nationwide consolidation of 700 MHz B and C Block, is another strong message to the FCC that AT&T wants their own unique spectrum band for LTE, and AT&T is not interested in interoperable spectrum deployments."

Carri Bennet, general counsel to the Rural Telecommunications Group, said RTG hasn’t yet analyzed the spectrum holdings in the markets where AT&T wants to buy spectrum. “There is just not enough spectrum to go around to have it so highly concentrated in the hands of the Twin Bells,” she said.

"We're reviewing all of these new transactions, and will make determinations based on the facts as we always do,” said Free Press Policy Director Matt Wood. “We're certainly not concerned about any spectrum gap between AT&T and Verizon Wireless. The problem is the huge gap between those two companies and all the other wireless carriers struggling to keep pace. The recent rash of deals demonstrates the glaring need to fix the FCC’s broken spectrum screen, which fails to account for the increased market power of AT&T and Verizon after each of these transactions -- and ultimately fails consumers who find themselves with fewer and fewer competitive options.”

Public Knowledge expressed similar concerns. “The important spectrum gap is between AT&T/Verizon and the rest of the industry, not between AT&T and Verizon,” said John Bergmayer, a senior staff attorney at PK. “These proposed transfers are another symptom of our broken spectrum policy, which rewards concentration rather than competition. AT&T would of course make better use of the spectrum than NextWave, which was letting it lie fallow. Those shouldn’t be the only two options, however. An important question to ask is why so much valuable spectrum was allowed to go unused for so long."

Jeff Silva, analyst at Medley Global Advisors, predicted in a research note the order will eventually be approved by federal regulators, though action by the end of the year could prove tough. “It would appear in the Obama administration’s interest to wrap up reviews of major telecom transactions in the near term, since doing so would guarantee the opportunity to put its imprimatur on the deals in advance of a potential regime change following November’s presidential election,” he said.

UBS analyst John Hodulik said the buy gives AT&T “ubiquitous 10 x 10 MHz spectrum for LTE in the 2.3 GHz band” and solves its spectrum demands temporarily. Hodulik also expects AT&T to make a play for 700 MHz B-block spectrum expected to be sold by Verizon Wireless, following consummation of its buys of AWS licenses from SpectrumCo and Cox. AT&T “continues to be active in improving its spectrum position,” noted Wells Fargo analyst Jennifer Fritzsche. “While we see this as a very expected move and one helping its amount of ‘usable’ spectrum … there is still much work to be done before WCS can be put to work. We would still put WCS in the ‘longer term’ spectrum solution category.” But Fritzsche said the buy helps put a value on WCS spectrum, since AT&T is paying what she stimates to be 16-17 cents per MHz/POP.

The buy would appear to provide an end point of sorts to the long, storied history of NextWave, the biggest bidder in a 1996 FCC auction intended for small businesses, which later defaulted on the licenses and filed for bankruptcy protection.