After collapse of the AT&T/T-Mobile deal, what is AT&T's Plan B?

AT&T's (NYSE:T) decision to end its nearly nine-month-long bid to acquire T-Mobile USA from Deutsche Telekom for $39 billion leaves it with few options as it seeks to bolster its spectrum position, according to financial and industry analysts.

First and foremost, AT&T will be forced to pay a $6 billion breakup fee to T-Mobile parent Deutsche Telekom. The deal includes $3 billion in cash and $3 billion in spectrum and roaming agreements.

Once that transaction is consummated, AT&T will be left looking for options to give it what it most wanted from T-Mobile: greater spectrum depth. The most immediate solution is for the FCC to approve AT&T's purchase of Qualcomm's (NASDAQ:QCOM) Lower D and E Block 700 MHz spectrum, a move the FCC has indicated it will do, with conditions. AT&T has said in FCC filings it will walk away from the deal if the FCC mandates a 700 MHz interoperability condition. Even without the condition, AT&T has said it will cost $1 billion to $2 billion to integrate the spectrum into its network. 

Beyond the Qualcomm spectrum, AT&T's options to acquire more spectrum are few. "Without this deal, it is going to be difficult for AT&T," Colby Synesael, an analyst Cowen & Co., told Bloomberg. "There's no clear solution." Verizon Wireless (NYSE:VZ) has agreed to buy more than $3.9 billion worth of AWS spectrum from Comcast, Cox Communications Time Warner Cable and Bright House Networks, preventing that possibility for AT&T.  

One potential solution, according to BTIG analyst is Walter Piecyk, would be Dish Network, which has said it might be interested in partnering with T-Mobile, Sprint Nextel (NYSE:S) or others if the AT&T/T-Mobile deal fell through.  Dish is seeking to acquire 40 MHz of S-band satellite spectrum to build a hybrid LTE-Advanced network.

"Dish could partner with T-Mobile or Sprint to help build a wireless network and offer a satellite bundle of services," Piecyk wrote in a research note. "It could also sell to AT&T, which would be attracted to its spectrum (assuming the FCC approved a transfer) as well as its pay TV services which AT&T would use to expand beyond its current U-Verse footprint."

One other option is spectrum-rich Clearwire (NASDAQ:CLWR), although Clearwire does have a strategic relationship with Sprint. Clearwire "could sell chunks of this spectrum to AT&T and T-Mobile or wholesale them future LTE capacity," Piecyk wrote. "Typically operators would like to control their own networks and spectrum assets so a purchase of spectrum is more likely than a wholesale agreement."

The FCC has said it would like to auction off broadcast spectrum for mobile broadband use, as well as the D Block of the 700 MHz band, but those auctions appear to be years away at the earliest since legislation authorizing them has not yet been passed into law. 

Absent more spectrum in the short term, AT&T will need to roll out its LTE network at a faster pace, said Recon Analytics analyst (and FierceWireless contributor) Roger Entner. "It's an aggressive buildout of the LTE network," he told FierceWireless. "They are up in 15 markets. They really have to get New York and San Francisco up because that's where the biggest pain is. And that will bring relief."

For more:
- see this Bloomberg article
- see this CNET article
- see this BTIG blog post (reg. req.)

Related Articles:
AT&T pulls the plug on $39B acquisition of T-Mobile USA
AT&T: Building out Qualcomm's 700 MHz will cost at least $1-2B
Report: AT&T's attempts to sell off T-Mobile assets hit dead end
Dish CEO: We could partner with T-Mobile if AT&T deal collapses
Justice Department wants to postpone AT&T/T-Mobile trial
AT&T's Stephenson: Blocking AT&T/T-Mobile will lead to higher prices
Report: AT&T, Deutsche Telekom consider network-sharing 'Plan B'

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