AT&T's 700 MHz purchase a win-win

Chalk one up for both Aloha Partners and AT&T. AT&T will pay $2.5 billion to Aloha to buy 12 megahertz of spectrum in the 700 MHz band that covers about 196 million people. (See story No. 2) Aloha gets a hefty return on investment given the fact that the company paid $43.3 million for all of its licenses in the 700 MHz band, channels 52 to 59, in 2002. And AT&T gets some highly coveted spectrum without gambling too much in the FCC's upcoming 700 MHz auction.

Aloha was not a speculator of spectrum. It has tried to make a business model out of its acquisition. In 2002, the 700 MHz spectrum it bought was nice and cheap because it was so heavily encumbered by analog broadcast TV signals. However, when I talked to Charles Townsend, founder and president of Aloha Partners, back in 2004, the company was considering a deployment of a broadband network to serve the public-safety community. And he set out to prove that a low-power system wouldn't interfere with existing TV signals. But the mobile TV hype was heating up. By 2006, Aloha was looking to capitalize on the market potential by creating HiWire, a subsidiary that would partner with carriers to offer DVB-H mobile TV services. Well, Aloha hasn't had many takers as it looks like Qualcomm's MediaFLO gains the edge, although it was in the midst of a trial with T-Mobile. At the same time, everyone wants their hands on 700 MHz spectrum. Hence, the nice $2.5-billion price tag.

AT&T now eliminates the headache of having to go big for 700 MHz C-block spectrum, the biggest swathe of spectrum, and deal with potential legal challenges and delays associated with the auction. More likely, the operator will work to augment its purchase with spectrum in the lesser coveted (and likely cheaper) A and B blocks, which each comprise two 6-megahertz swathes. The operator just put pressure on competitor Verizon Wireless to go big in the auction. Interestingly, the price paid by AT&T for the Aloha bandwidth essentially sets a value of around $1 per megahertz, per pop. That is higher than the reserve price set by the FCC rules.

What will AT&T do with the spectrum? I suspect it will wait to see how the mobile TV market takes off before deciding, but chances are with a $2.5-billion price tag, LTE will be the foremost consideration. --Lynnette