AT&T will bid in 600 MHz auction, would like to get a 20 MHz nationwide block of spectrum

AT&T (NYSE: T) plans to participate in next year's incentive auction of 600 MHz broadcast TV spectrum and would like to win a 2x10 MHz block of spectrum nationwide, but it is not willing to commit to how much it will bid, according to a senior AT&T executive.

AT&T CFO John Stephens, speaking at the Morgan Stanley European Technology, Media & Telecom Conference, noted that buying spectrum "has served us well" and that "spectrum is a scare asset, and so we would expect to participate."

"I won't suggest at what level," he continued. "But we plan in our business plans to do that, and we'll see how it plays out, what's available. Certainly, getting a nationwide opportunity is what we've talked about in the past. A 2x10 [MHz] nationwide capability is something that works very well with our network planning and our network team, but we will see how this develops."

Speaking yesterday at the Wells Fargo Securities Technology, Media & Telecom investor conference, Ralph de la Vega, president and CEO of AT&T Mobile & Business Solutions, indicated that he thought analysts' projections of the incentive auction raising $60 billion were unrealistic, especially given Sprint's (NYSE: S) decision to sit the auction out. AT&T Mobility CEO Glenn Lurie made similar comments in October.

T-Mobile (NYSE:TMUS) CFO Braxton Carter said at an investor conference in September the carrier might have as much as $10 billion it could spend on spectrum during the incentive auction. However, he said that he doesn't think T-Mobile will need to spend that much to obtain the spectrum it wants. T-Mobile has been the most enthusiastic carrier in support of the incentive auction, largely because it lacks the low-band spectrum holdings of Verizon Wireless (NYSE: VZ) and AT&T.

Speaking of spectrum, Stephens noted at the Morgan Stanley conference that AT&T plans to invest $9 billion in capital expenditures into its wireless network this year, which, he said, while down from elevated levels of spending in 2013 and 2014, is still significant.  

"We have probably more macro towers in service in the United States than any of the carriers. For a number of years it caused some pressure because of the operating expenses associated with those macro towers on our margins," he said. "But now it's become our advantage. Specifically with our spectrum position, we've been very attentive to our spectrum needs."

Indeed, AT&T has started deploying its 2.3 GHz WCS spectrum in some urban markets but has not said how widespread that deployment is or will become. AT&T also spent $18.2 billion in the AWS-3 spectrum auction that ended in January and secured a nationwide footprint.  

Stephens said that AT&T will be able to efficiently deploy those airwaves for more capacity. "So with these towers already in place, and this deep, dense LTE network in place, we can now add spectrum to it at a different cost structure than building new towers or building small cells," he said.

AT&T has also repurposed "virtually all" of the AWS and PCS spectrum it acquired in its deal to buy Leap Wireless, Stephens said. "We have about 40 MHz of nationwide spectrum available, in the process of being tested and being put into service," he said. "So we have a really clear path to keeping our network at a very high-quality level and dealing with demand, with spectrum as well as with some capex spending." He added that AT&T has a "high expectation that the quality of our network is going to stay at a very, very high level."  

Speaking to other aspects of the company's domestic wireless business, Stephens noted that AT&T is not going to chase every customer. AT&T said it lost 545,000 postpaid phone customers in the third quarter. AT&T also lost 322,000 postpaid phone customers in the second quarter.

AT&T added 466,000 prepaid net subscribers in the third quarter, notching its best quarterly prepaid subscriber additions in nearly eight years. The result was a sharp improvement from the loss of 140,000 prepaid customers in the year-ago quarter and 331,000 prepaid net adds in the second quarter.

"When you look at our choices with regard to some of the more cost-conscious feature phone customers, no we don't see the economics of some of the offers that are out there just to retain those customers," Stephens conceded. "But rather, we are shifting our focus to provide those customers quality offers in a prepaid basis with our Cricket brand."

AT&T added nearly 1 million branded (postpaid and prepaid) smartphones to its customer base through new customer additions and upgrades in the third quarter, with around 800,000 of those coming from prepaid. Yet that's down from the year-ago period, when it added 1.2 million postpaid smartphones alone. Stephens said AT&T would not get drawn into a price war to chase unprofitable customers.

"We are growing the business," Stephens said. "We are not going to chase every customer. And some of the offers that are out there have some economic challenges in our mind, so that we're not going to repeat those or follow those. We're going to take an approach that's much more measured and much more focused on proving those high-quality customers great service, a great network, great products, great choices. And those customers who are more cost-conscious, give them a great prepaid offering on a great quality of service."

In terms of AT&T's Next equipment installment plan, he said the "vast majority" of customers on Next are choosing Next 24, which lets them pay off their phone in 30 monthly payments and upgrade after 24 payments. He added that customers are keeping their phones longer than AT&T had originally anticipated when it launched Next in July 2013, and that is a good thing for AT&T because it keeps down its financing costs and the need to purchase new phones for upgrades.

For more:
- see this webcast (reg. req.)

Related articles:
AT&T leads carriers' TV ad spending in October, topping charts for 3 months in a row
Verizon and T-Mobile remain steady wireless network spenders in Q3, with less clarity on AT&T and Sprint
AT&T leans on prepaid, connected devices for subscriber growth in Q3
FCC's Wheeler: Carriers are engaging in normal pre-auction positioning and 'shenanigans' ahead of 600 MHz auction
AT&T and Verizon could use the 600 MHz spectrum reserve to pressure T-Mobile - and lots of other smaller carriers
AT&T's Lurie: $60B from the 600 MHz incentive auction is 'unrealistic'