AT&T gets Lion’s Share of Verizon B Block, but Tower Co. Gets a Slice

February 10, 2013

As Verizon Wireless lower 700 MHz B block spectrum auction rolled forward in late January, AT&T was the obvious winner but a small, quiet tower company stepped up and got its share of the frequency pie.

Verizon will sell B block licenses covering the Charlotte, Greensboro and Raleigh-Durham, N.C., to Grain Management, a Sarasota, Fla.-based private equity firm that develops wireless infrastructure, for $189 million. Verizon Wireless will also lease from Grain Management an AWS license covering Dallas, which Grain is acquiring from AT&T.

Paul Weiss, which represented Grain, said the two deals were worth $290 million in the aggregate.

The 700 MHz B block of spectrum purchased by AT&T covers 42 million in population across 18 states at a price of $1.9 billion in cash and the contribution of five AWS licenses. Jennifer Fritzsche, senior analyst, Wells Fargo, noted that AT&T’s purchase price in some markets was about half of what Verizon paid for the spectrum originally.

“In terms of price, this appears to be a good price for both AT&T and Verizon,” Fritsche said.

The B block licenses are concentrated in major metropolitan markets, including Chicago, Los Angeles and Miami. AT&T was expected to buy of the bulk of this spectrum because of its proximity to the carrier’s current spectrum in the 700 MHz B and C blocks, allowing it to consolidate its position and deploy a 10×10 MHz LTE network in a larger footprint.

“In our view, AT&T is the logical buyer, and this was a noncore asset for Verizon,” Fritsche said. “This spectrum is complementary to AT&T’s existing 700 MHz B and C block holdings, it would have been disappointing to see this spectrum go to another player when the dominant trend in spectrum has been the consolidation of the bands.”

AT&T to Acquire Alltel Rural Spectrum

In addition to its urban spectrum purchase from Verizon, AT&T announced on Jan. 22 that it has acquired the rural U.S. retail wireless operations of Atlantic Tele-Network, known as Alltel, for $780 million in cash. Alltel’s CDMA network covers 4.6 million people in Georgia, Idaho, Illinois, North Carolina, Ohio and South Carolina.

The acquisition includes spectrum in the 700 MHz, 850 MHz and 1900 MHz bands and is mostly complementary to AT&T’s existing network. AT&T does not expect the costs for converting the network from CDMA to LTE to affect cash flow. The deal, which will be reviewed by the government, is expected to close in the second half of 2013.

Iain Gillott, head of IainGillottResearch (IGR), recently called the above mentioned transactions plus the T-Mobile/MetroPCS and Sprint/Softbank hookups “The Great Spectrum Grab,” speculating that some of the consolidation is due to the looming industry conversion to LTE.

“The big four are taking the opportunity to acquire spectrum in areas they do not currently operate but only at the right price,” which will be then converted to LTE along with their current spectrum holdings, he said.

Gillott said smaller operators have multiple options as they look to the LTE future. First, they can simply build out LTE if they have suitable spectrum or partner with a major operator (as in the Verizon Wireless’ rural LTE program) or sell they can sell their spectrum.

“The move to LTE is not trivial and while there are ways to offset the costs (using a hosted EPC for example), the fact remains that moving from 3G to LTE is a major generational shift,” Gillott wrote.

The FCC’s block of AT&T/T-Mobile blockbuster has had a lasting effect on spectrum deals, Gillott said. In the current regulatory climate, spectrum must be acquired by the handfuls, not by the armload in hopes not to upset the feds.