Analysts: Even after 700 MHz purchase, AT&T still trails all national carriers in spectrum

Despite the carrier's $1.9 billion deal to acquire spectrum from Verizon Wireless (NYSE:VZ), announced on Friday, AT&T Mobility (NYSE:T) still does not have as much spectrum per subscriber as Verizon, according to analysts.

AT&T Friday announced it would purchase a big chunk of Verizon's 700 MHz B block spectrum, which it will use for its LTE network. The day before, AT&T closed its $600 million purchase of NextWave Wireless, which will give AT&T additional 2.3 GHz WCS spectrum for its LTE network. And AT&T just this month announced a plan to buy Atlantic Tele-Network's retail wireless business, which still operates under the Alltel brand, for $780 million. That purchase, which like the Verizon deal will require regulatory approval, includes spectrum in the 700 MHz, 850 MHz and 1900 MHz bands and is largely complementary to AT&T's existing network.

Still, even after all of AT&T's purchases, it will still trail Verizon, according to analysts. "AT&T is in a materially worse spectrum position than Verizon, in our view," wrote New Street analyst Jonathan Chaplin. "This transaction helps narrow the gap slightly; however, Verizon maintains the advantage. All told, AT&T will have 26 MHz that they can deploy for LTE immediately and 28 MHz of WCS which we believe they can deploy in late 2015, compared to Verizon who now has 35 MHz that is all immediately deployable. Even after this transaction, AT&T will have less spectrum per sub than all three national carriers."

Analysts at Moody's Investors service said AT&T's deal with Verizon is a positive move for AT&T that, along with the carrier's plan to boost capital expenditures this year, will help improve its competitive position. Still, they also pointed out to the strategic advantage Verizon has, especially now that it controls nationwide AWS spectrum it purchased last year for $3.9 billion from a group of cable companies, including Comcast, Time Warner Cable, Bright House Networks and Cox Communications.

"Moody's believes that Verizon Wireless has a modest competitive advantage over AT&T Mobility due to its more advanced LTE network deployment, its strong spectrum position and high perceived network quality," the ratings agency wrote. "Moody's believes that these differentiating factors have enabled Verizon to gain market share over the last several quarters, while AT&T's net subscriber additions have been comparatively weaker."

Verizon is using its 700 MHz Upper C Block spectrum for its initial LTE deployment, and now covers 273.5 million POPs with LTE, or roughly 89 percent of the U.S. population. Verizon expects to finish its initial LTE deployment by mid-year. Verizon plans to begin turning on LTE services in its AWS spectrum this year in locations where it needs extra capacity.

Meanwhile, AT&T currently covers 174 million POPs with LTE, and plans to hit at least 250 million POPs by the end of 2013. AT&T revealed late last year it would increase its LTE coverage to 300 million POPs by the end of 2014.

The spectrum deals also come as the FCC reviews rules on how much spectrum carriers can hold. However, Jeffrey Silva, an analyst at Medley Global Advisors, wrote that while the FCC and Department of Justice have indicated concerns with Verizon and AT&T's strong competitive positions relative to Sprint Nextel (NYSE:S) and T-Mobile USA, "we anticipate the transactions will be cleared in some form later this year."

Silva wrote that industry dynamics are changing, with T-Mobile moving to merge with MetroPCS (NYSE:PCS) and Softbank's $20.1 billion to buy 70 percent of Sprint, coupled with Sprint's bid for Clearwire (NASDAQ:CLWR).

"The extent to which the FCC might tighten the spectrum screen, including the possibility of according greater weight to spectrum below 1 GHz, could go a long way to shaping the contours of any government approval to the AT&T spectrum deals," Silva wrote. "Indeed, the spectrum screen risk could perhaps be a key driver of the timing of AT&T's latest transactions. AT&T is playing catch-up to Verizon in the evolving 4G LTE market, but remains significantly ahead of other wireless competitors on that score."

For more:
- see this GigaOM article
- see this WSJ article (sub. req.)

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